The Albanian government published its white paper on employment last week.
He presented the document as a major work, comparable to white papers of past eras.
It outlined the government’s ambition to resolve the major problems in our labor market and contained a new definition of “full employment”.
But was it revolutionary? Will this lead to cultural change?
The scourge of involuntary unemployment
Let’s start with some positives.
The government says the concept of “full employment”, as the Reserve Bank now defines it, is inadequate.
He says what the RBA considers to be full employment has coexisted with a lot of “involuntary unemployment” in the economy, and that it wants to change that.
It is important.
The debate on involuntary unemployment goes back over 80 years and it is really interesting to see the government resurrecting it.
I’ll show you what I mean.
In 1936, British economist John Maynard Keynes published an influential book titled The general theory of employment, interest and money.
It inspired a wave of “full employment” policies that swept across the democratic world in the 1940s and 1950s.
Keynes showed, in this book, that the traditional way of thinking about unemployment was ignorant and damaging.
He added that orthodox economists assumed that there were only two types of unemployment: frictional unemployment and voluntary unemployment.
But there is actually a third type – involuntary unemployment – which describes the reality of millions of people who wanted work but couldn’t find one because there wasn’t enough demand for their work.
He declared that “full employment” would only exist when involuntary unemployment disappeared (leaving only frictional, voluntary unemployment).
And his book opened people’s eyes.
This has prompted policymakers in countries like Australia to deliberately stimulate economic activity in order to create enough demand for labor that involuntary unemployment will collapse as a category.
See the chart below.
It shows what happened to the unemployment rate in Australia in this post-war period of full employment policy.
Now, let’s quickly return to today.
The government’s Employment White Paper clearly draws on some of this thinking.
He argues that the modern definition of “full employment” used by the RBA is far too narrow and that our discussions of full employment must acknowledge the reality of involuntary unemployment and high levels of underutilization of Australian workers in the modern era .
It has also revived some wisdom from old conceptions of full employment by reminding us that true full employment also has qualitative aspects.
What does that mean?
This means that the quality of a job is also important to people, and that jobs should be paid fairly and be in a reasonable location. And if someone is unemployed, it should never take them so long to find a job that it starts to demoralize them.
These qualitative aspects of full employment were highlighted by William Beveridge in 1944, in his landmark work “Full Employment in a Free Society”, which I spoke about a few months ago.
According to Beveridge, if full employment meant anything, it meant an abundance of jobs that paid decent wages, where the unemployed did not languish in unemployment, and where labor markets slightly favored workers and not employers.
Thus, the Albanian government once again draws our attention to the scourge of involuntary unemployment, and it emphasizes the qualitative aspects of abundant work, to say that this is full employment.
So this is all really interesting.
A little courage, but not too much
Strangely, after arguing for a “new” definition of full employment, the government’s white paper feels like it’s melting.
He does not promise to use a set of strong-arm policies to quickly eliminate involuntary unemployment from the system.
Instead, he uses a lot of words (the diary is 264 pages long) to explain something sweet, namely: he doesn’t really want to be too disruptive.
Thus, the newspaper asserts that the Reserve Bank will continue to use its too narrow concept of full employment to make monetary policy decisions, but that the government will strive to remove obstacles to employment on the side of the supply in order to contribute to the reduction of structural unemployment over time.
This way, he says, if things go as planned, the RBA should ultimately be able to maintain a much lower level of unemployment than it has seen in decades, with underutilization rates of much lower labor force.
Does this sound revolutionary to you?
This is not the case for me. This looks like the same ambition that successive governments have had for 30 years, since the Reserve Bank began targeting inflation in the early 1990s.
And in a moment of cognitive dissonance, the white paper even criticizes the results of this familiar policy approach.
“Despite its many successes, the Australian economy has rarely achieved full employment for long periods and there have been prolonged periods when the available workforce has been underutilized to a much greater extent than it is not today,” he says.
So it’s hard to avoid the feeling that this white paper is slightly confusing, or that it says a lot about not much.
But then, maybe that’s unfair.
He may have great ambition, but it is obscured by verbiage. Or maybe it’s deliberately obtuse, and we’ll have to wait and see what kind of legislation the government tries to push through Parliament before we understand what its final agenda is.
Would it survive a change of government?
So where does this leave us?
Would it be easier to get excited about the white paper if its vision were clearer and its ambition bolder?
On this point, it compares unfavorably to [1945WhitePaperonFullEmployment.
This 1945 document was much smaller (it contained only 131 paragraphs), was written in the simplest language, and had a major impact.
From the start, he declared his intentions: he wanted to change Australia.
When John Dedman, Minister for Post-War Reconstruction, presented the document to Parliament on May 30, 1945, he didn’t mince his words:
“I believe that this white paper constitutes a charter for a new social order.
“The old order of the interwar period had as its primary goal rigid adherence to a certain financial policy. If this meant 30 percent unemployment and a decline in world trade, then, according to financial experts, At the time, these were necessary evils.
“What a miserable social structure they have built on their own false foundations.”
He clearly explained how the white paper was structured:
“First, it sets out boldly and unequivocally the Government’s intention to ensure full employment for the Australian people after the war.
“Secondly, it describes the method by which the government proposes to achieve this objective.
“Third, it examines the particular problems that the Australian economy will face in the transition from war to peace.”
And he said Commonwealth and state governments must accept responsibility for boosting spending on goods and services to the extent necessary to maintain full employment, because everyone’s well-being depended on it:
“The policy of full employment is the positive contribution of the government to the security of the individual. Full employment is synonymous with opportunities, and opportunities pave the way to success (…)
“This white paper is an affirmation from the Australian Government that it intends to pursue this policy with the greatest energy and determination.”
Clear and digestible. It was not possible to guess what the policy was or what the government planned for the country.
And when the government lost power four years later (for various reasons), this full employment policy was popular enough to survive the change.
In fact, the victorious Liberal prime minister, Robert Menzies, adopted it as his own and pursued full employment for the next 16 years.
Can we see this happening with this white paper?