CREATING JOBS FAST 133

Creating ROGER BERRY,

Beny is a Labour MP, KitSon s M d *hie d r ~

A million jobs could be created economirtsatcmkie University quickly and without excessive cost

nder the Tories, the richest tenth of households have become 60 per cent U better off while the poorest tenth are

20 per cent worse off; wage inequality has become greater than at any time since records began in 1886. At the General Election it is vital that the Labour Party has clear policies to improve living standards and enhance the quality of life for the majority of the electorate. The two fac- tors which would be of great- est benefit to most people would be higher employ- ment levels and improved public services.

Unemployment results in enormous personal hardship and misery - it destroys rela-

last 20 years as 'deregulation' of the labour market has created economic and social inse- curity on a scale unprecedented since the sec- ond world war. Unemployment and the de- regulated labour market have together re- duced incentives to invest in the skills upon which future economic prosperity depends.

In addition, many people doubt the ability

"We should not be defensive about the possibility of creating jobs in

public services - the costs would be

modest and easily financed. "

tionships, breeds racism and causes social disintegration; and it has been the major cause of the alarm- ing growth of inequality and poverty since 1979. A reduction in unemployment would not only bring additional income to those in- dividuals and families hit by job losses, it would aiso help overcome the insecurity at work which all opinion poll evidence sug- gests is of widespread concern.

The proportion of the working population in full-time permanent employment has fallen from 56 per cent to 36 per cent over the

of governments to do any- thing much about unemploy- ment and job insecurity. We believe this pessimism to be unfounded. Unemployment is not inevitable; governments can create jobs, and these need not be cheap-skate jobs for poverty pay. What is required is an increase in investment in public services and the pro- ductive and social infrastruc-

ture and this should be a priority for Labour in its first year.

Unemployment costs Unemployment is expensive because un- employed people and their dependents re- ceive benefits and pay less tax. In 1994/95, spending on social security benefits for un- employed people was E l l billion, in real terms three times that of 1979/80. Add to this the costs of foregone taxes, and the total an-

1070-3535/96/030133 + 05 S12.00/0 c 1996 THE DRYDEN PRESS

134 NEW ECONOMY

nual cost comes to almost f30 billion a year - the same as total expenditure on the NHS or twice the expenditure on education and transport combined - and a figure consistent with Treasury estimates of over €9OOO per claimant. More detailed studies suggest that when all the various tax and benefit items are included, the costs of unemployment are even higher (Kitson, Michie & Sutherland, 1996).

There is also strong evidence to show that unemployment leads to mental and physical ill-health (Burchell, 1992) as well as to in- creased crime, especially domestic burglary (Dickinson, 1995). In addition, inequality and poverty caused by unemployment have detri- mental effects on the balance of payments - as the better off tend to spend more, proportion- ately, on imports - and on the real economy, as they depress consumer spending.

Moreover, a growing share of the income of the working poor is met, not by their em- ployers, but by the taxpayers through income support, increasing the burden on public ex- penditure as well as the poverty trap. If total government spending is constrained then this burden has to be met by public spending cuts imposed elsewhere, cuts which may well in- crease unemployment. Unemployment is thus both an immense social problem and a colossal economic waste. It is unjust and inef- ficient.

More public jobs Any strategy for full employment must be based on two essential components. First, there must be a substantial increase in invest- ment in the tradeable sector, and in manufac- turing industry in particular, in order to boost economic growth and net exports. This is essential to prevent full employment lead- ing to a surge in imports that cannot be fi- nanced. However, since manufacturing needs to achieve high levels of productivity to compete internationally, the potential for immediate job generation in this sector is limited.

Second, therefore, any strategy to cut the dole queues requires suitably targeted invest- ment in public services and infrastructure. There are some obvious areas of enormous social need, where there is work to be done and where jobs can be created quickly: 0 Homeless people sleep on our streets,

there are record housing waiting lists and millions of homes are in need of urgent repair. Yet almost 400,000 construction workers are unemployed. School classes are too large and invest- ment in education and training lags be- hind that of our competitors, while teachers and other education workers are losing jobs.

0 Hospital waiting lists are unacceptably long, while the numbers of nurses and other health care staff are cut.

0 'Care in the community' is little more than a fiction for many people with disabilities and elderly people in desperate need of support. Yet there is little funding to pro- vide the care staff necessary for that sup- port.

0 Dirty streets and run-down neighbour- hoods are in desperate need of attention. There are many other examples that dem-

onstrate that an increase in public sector em- ployment is necessary, both as an essential step towards full employment, and to satisfy social needs. It also has other advantages:

First, private spending is currently low and therefore any sigruficant increase in demand must come from the public sector. Second, targeted public spending is less import-intensive and more labour-inten- sive than private sector spending. Thus, a given investment generates more jobs and has fewer adverse effects on the balance of payments if it comes from the public purse. Third, long-term economic growth re- quires investment in education and infra- structure, and this can only come via the public sector. At present, the UK lags be- hind the other major industrialised coun-

CREATING JOBS FAST 135

tries in terms of skills and capital investment, and these are the most important factors in determining the future prosperity of the economy.

0 Fourth, a public investment strategy producing quality jobs will help to reverse the post-1979 trend of increasing inequality.

0 Fifth, economic growth must be environmentally sustain- able and the pursuit of private profit will not ensure ade- quate environmental protec- tion.

A first step towards full employ- ment would be the creation of one million full-time jobs, in the way we outline below (and in more detail in Berry, Kitson & Michie, 1995).

Making the magic million The first million jobs on the road to full em- ployment can be created relatively easily. These examples are illustrations only but demonstrate that the benefits of such a pro- gramme are substantial while the costs are modest.

Housing The demand for council and housing associa- tion homes continues to outstrip supply. In- dependent studies have identified the need for at least 100,000 affordable new homes a year. In addition, more than three million - one in six -homes need urgent repairs, cost- ing more than €1,000. Poor housing condi- tions cause ill-health, currently estimated to cost the NHS €2 billion each year.

The cost of creating an additional job through increased spending on housing clearly depends upon how such expenditure is used. Building new homes for rent incurs greater non-labour costs than spending on renovations and repairs, although public in-

Illustration: David Simmonds

vestment in building new homes may be re- duced by attracting private capital through housing associations. Estimates of the aver- age for all housing expenditure suggest each job would cost around €25,000; therefore, 150,000 jobs would cost f3.75 billion. This could finance the building of 60,000 more homes for rent and bring 200,000 unfit homes up to standard.

Education and Training In 1992/93 staff-related spending by local education authorities in England was €23.3 billion, including wages and salaries, equip- ment and other staff-related matters. With inflation this equals €15.4 billion in current prices. This financed 470,000 full-time equivalent teachers and lecturers and 360,000 other full-time equivalent staff, such as sup- port staff, supervisory staff, cleaners and caretakers. Assuming that any additional staff-related expenditure was divided be- tween teaching and other staff in the present proportions, then the average cost per job in education and training would be €19,000.

Increasing the number employed in educa-

136 NEW ECONOMY

tion and training by 150,000 would therefore cost €2.85 billion. Any addi- tional capital expenditure required would add to the cost, although many schools and colleges have space that could be used if they had the staff to do so. It is inconceivable that capital con- straints would prevent substantial im- provements to the quality of educa- tion and training as a result of this 18 per cent increase in staffing.

The universal provitkion of nursery education for all three and four year- olds costs between E86Q millian a year (the National Commission on Educa- tion) and €1 billion a year (the Depart-

~ ~~

Oeating one miHihn new jobs will lead to net savings

Sector jobs Generated Cost perjob Total Cost (thousands) (fooOt) (f million)

Housing I50 25 Education and training I50 19 2.850 Health I50 23 3,450 Care in the community I00 26 2,600 Envimnmemalprojects 100 24 2,400 Energycomecvation 100 I 8 I,W

Total direct jobs created 750 22.5 16,850

Additional indirect jobs created 250 0 0

TOTAL lo00 16.85 16,850

ment for Education). Therefore a major start could be made in doing this and some re- sources would be left to reduce student- teacher ratios and expand the number in full- b e education and training, which would further reduce unemployment as people tak- ing up full-time places on education and training courses would help to improve the skill base of the economy.

Health In 1993 €13.6 billion was spent on salaries and wages in the health service. Additional spending on equipment and other matters brings staff-related spending to €16.6 billion, around €17.6 billion in today’s prices. This financed the employment of 773,880 full-time equivalent staff. Each job in the health service therefore costs about €23,000; an extra 150,000 jobs would cost €3.45 billion, in- creasing NHS employment by 16 per cent.

Personal social services/ care in the community

In 1993/94 local authority social service de- partments in England employed 233,000 full- time equivalent staff, with a total current expenditure of f5.7 billion, equivalent to €6 billion with inflation. Each job costs €26,000, an extra 100,000 therefore costing €2.6 billion, which would increase employment in per-

sonal social services by 36 per cent.

Environmental projects Environmental policy can take three main forms: regulatory measures, such as the im- posing legal standards for waste disposal and pollution; ‘eco-tax reform’, to shift the tax burden towards energy use and pollu- tion; and public spending, to improve the environment. The cost of creating an addi- tional job in these areas is approximately €24,000; 100,000 jobs could therefore be gen- erated for €2.4 billion.

Energy conservation A programme of energy conservation can generate returns that alone justrfy the invest- ment, and payback commonly occurs in less than five years. Of course, saving energy is good for the environment, while energy con- servation measures create jobs. Boardman (1991) estimated each job would cost €17,000, equal to €18,000 with inflation; 100,000 jobs therefore cost €1.8 billion.

Additional jobs These proposals would directly create 750,000 jobs (see the Table above). The in- come spent by those employed would create additional jobs throughout the rest of the economy, increased spending expanding

CREATING JOBS FAST 137

employment amongst suppliers. Together this could lead to another 250,000 jobs, mak- ing around a million jobs in total.

Paying for the magic million The creation of one million jobs would cost the Exchequer around E7billion. The increase in public spending of €17 billion would be offset by savings in unemployment-related benefit payments and higher tax receipts, which together would account for €10 billion of the increase. The obvious question is how would the net increase of €7 billion be fi- nanced?

At present an estimated €6 billion from the sale of council homes is set aside for debt re- payment, and # billion of these capital re- ceipts might reasonably be used to fund the housing programme. The remaining €4 bil- lion could be funded by public sector borrow- ing and increased taxation. For example, an additional €2 billion in taxes can easily be found even without plugging tax loopholes which, although essential, will take some time to implement. A new 50 per cent band on taxable income in excess of fiO,OoO, for exam- ple, is a tiny amount compared to the €15 billion in tax cuts received by the top 10 per cent of income earners under the Tories.

Alternatively, €2 billion could be raised by increasing corporation tax from 33 per cent to 36 per cent, leaving it still significantly below the European average of 40 per

even the modest tax increases suggested above unnecessary, although in our view it would be better to use these savings to im- prove the quality of the health and police services.

Conclusion Unemployment today is not the result of there being too little work for all those who seek employment. An incoming Labour Gov- ernment should put resources to work to improve living standards, starting by repair- ing and improving public services.

Of course, governments are continually under pressure from business, the 'City' and elsewhere to cut back on public employment and public intervention in the economy - and an incoming Labour Government will be no exception. This needs to be countered by cre- ating greater pressure for progressive eco- nomic policies. In practical terms this means an incoming Labour Government must ex- pand public employment and improve the welfare state and environmental pro- grammes, as well as take action to increase the level of industrial investment and upgrade the productive infrastructure. Only in this

"Unemployment today is not the result

of there being too little work for all

those who seek emp 1 o ymen t. "

cent. Rates of inheritance tax, capital gains tax and tax relief could also be changed to mobi- lise such modest resources. If €2 billion of ad- ditional tax revenue is raised, this would leave only €2 billion to be found through in- creased borrowing.

Therefore, the financial costs of increasing employment through such a programme would be modest. Reductions in ill-health and crime would save the Exchequer in areas such as health and police budgets, and could make

way can the conditions for sustainable economic growth be created.

We should not be defensive about the possibility of creat- ing jobs in public services -the costs would be modest and easily financed.

Such a programme would meet the aspirations of the electorate on two of the issues of most concern: the need to re- verse the run-down of education, health and other public sector services; and the desire to overcome insecurity at work which high lev- els of unemployment breed. The tangible im- provements in the quality of life would last beyond the Labour Government's first year of office, enabling further support to be gener- ated and creating the possibility of victories in subsequent General Elections 0