What does “Full Employment” actually mean?

22 May 2017

Labour has pledged to achieve full employment, as the Conservative Party did in the last general election.

Intuitively it’s a simple commitment: it implies you want everyone looking for work to be able to find a good job in a reasonable amount of time. This article is about different ways to measure the commitment and turn it into a hard promise.

Taken literally, ‘Full Employment’ would mean absolutely everyone in the country having a paid job. That would be quite a surprising situation and perhaps not a desirable one, so people usually take ‘full employment’ to mean something different: either a particularly low unemployment rate or a very high employment rate.

Low rates of unemployment

Full employment could be judged by looking at the rate of unemployment.

You count as unemployed in the official statistics if you don’t have a job, have been looking in the past month and are either ready or waiting to start one in the next two weeks. (It shouldn’t be confused with the number of people claiming benefits, since not all unemployed people do so, or with people who aren’t looking for work.)

4.7% of people aged over 16 are unemployed. That’s a ten-year low and a relatively low proportion compared to recent decades.

A target of 0% unemployment is usually considered to be a bit unreasonable. Some causes of unemployment are partly avoidable, like when people don’t have the right skills for the jobs available. But other things seem less avoidable, like the time it takes to search for the right job (or the right candidate).

In the past, some politicians have chosen simply to target a low rate of unemployment. In 2007 Nicholas Sarkozy promised to secure ‘Full Employment’ in France by 2012, defined as an unemployment rate of below 5%. By that measure, the UK would have already made it.

The mid-20th century social reformer William Beveridge defined ‘Full Employment’ as a situation where the number of jobless workers was matched by the number of vacancies. The UK isn’t there yet: there were about twice as many unemployed people as vacancies advertised at the beginning of 2017.

Yet another way to do it would be to compare the UK to other rich economies. The UK ranks 11th out of 35 in the OECD when it comes to low unemployment rates.

None of these measures are perfect. Picking a particular rate will always be a bit arbitrary. Having the same number of jobless people as vacancies won’t be helpful if all those workers have the wrong skills. And targeting a lower rate than other countries means aiming at shifting goalposts.

A high rate of employment

On the flip side, ‘Full Employment’ could be taken to mean a particularly high rate of employment.

Unlike targeting a low employment rate, this isn’t just about getting people a job. It’s also about getting them into the workforce in the first place.

At the start of 2017 just under 75% of people aged 16-64 were in work, including full-timers, part-timers and self-employed people. Overall, that’s the highest it’s been recorded (although the proportion of men in work is lower than it has been in previous generations).

The UK government has targeted high employment rates in the past. In 2007 the Department for Work and Pensions set out a long-term goal to achieve an employment rate of 80% or higher. The EU’s 2020 Strategy aimed to get 75% of the working-age population (20-64) into work. The previous Chancellor, George Osborne, set out an ambition to get more people into work than any other G7 country.

These targets have similar issues to the ones we’ve discussed above.

And there’s another set of issues. First, not everyone wants a paid job. Second, it’s clear that some really important work goes unpaid. So there’s likely to be some debate about what employment rate counts as ‘Full Employment’.

Just under 22% of the working-age population were ‘economically inactive’ at the start of 2017, in the sense that they didn’t have a paid job and weren’t looking for one. That’s close to the lowest on record.

Some of these people do things that are fundamentally important to society, even though they don’t get paid for it.

It’s easy to think of examples, like people who leave work to raise children or care for relatives full-time. Some people have referred to this kind of labour as the ‘core economy’.

People who fall into the category of ‘economically inactive’ are also more likely to come from disadvantaged groups.

This makes the issue more complicated. The question isn’t just about getting people into paid work, but also making sure different kinds of work are respected and supported in the right way, a target that’s much harder to measure.

There’s also a question about how many more people with long-term health problems could enter paid work (with appropriate adjustments from their employer). Paid work might never be an option for some.

Out of 8.9 million ‘economically inactive’ working-age people in the UK about 2.3 million are studying, 2.2 million are looking after their family or home (of which nearly 2 million are women), 2 million are suffering from long-term sickness and 1.2 million have retired.

Some other things that get called ‘full employment’

There are a few other things which economists sometimes refer to as ‘Full Employment’, such as ‘equilibrium’ unemployment, or the ‘natural ’ or ‘non-accelerating inflation rate of unemployment’ (NAIRU).

The difference between these concepts is a bit nuanced and they aren’t referring to anything that you can directly measure in the real world. Nor are they meant to suggest that there’s a level of unemployment in the economy which is set in stone and impossible to change in the long term (even if the names can make them sound like that). They are important ideas when it comes to debates about what’s causing unemployment and what the government should be doing to get more people in to work.

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