Jobs Growth - Even In The Great Depression

Wages up, jobs up... maybe the Great Depression wasn't quite as depressing as they'd have us believe

The left continues to rubbish the Office for Budget Responsibility's forecast of 2m new private sector jobs by 2015-16. This morning the BBC's Evan Davis described it as "quite a claim", and according to the Grun, Alan Budd is going to be hauled before the Treasury Select Committee to confess his manifest pro-Tory bias.

But in truth - as we blogged a couple of days ago - Budd's forecasts do no more than suggest a return to the same sort of private sector jobs growth we've seen for at least the last two decades.

The key issue is whether we can trust the private sector to deliver these jobs, given the uncertain international background. We're with Budd in believing we can, but the left reckons we can't, and warns of a second Great Depression if we and others push ahead with fiscal retrenchment.

Which is why we've taken a closer look at what actually happened to jobs growth during the Great Depression itself. Because as our previous blog noted, despite the Depression, during the early 1930s the number of jobs actually increased.

The chart above shows what happened to total employment throughout the 1920s and 1930s*. And as we can see, it was on a rising trend throughout the period, driven by the private sector.

To be sure, the onset of the Depression in 1929/30 brought a significant fall in employment with about 1m jobs lost. But within 3 years, employment was growing again. And within 5 years it has surpassed its 1929 peak. All driven by the private sector (this was pre-rearmament, and took place despite the fiscal restraint imposed by MacDonald's government).

So how was it done?

In a nutshell, monetary policy was loosened substantially, with interest rates cut from 6% to 2% (Bank Rate), and sterling depreciated by about 30% (only possible because we abandoned the Gold Standard). And that - along with the fact that no British banks were allowed to fail - was enough to save us from worst ravages of the global downturn. Despite the fact that world trade fell by a whopping 66% between 1929 and 1934.

Which is all encouragingly similar to where we find ourselves today. Yes, there's pain, and yes, jobs are still being lost. But official interest rates are even lower than they were during the Depression, sterling has depreciated by about 25%, and no British bank has been allowed to default on its deposits. What's more, although world trade fell 11% last year, the OECD expects it to grow by 11% this year with another 8% to come next. The key conditions for a decent UK private sector revival are already in place.

Of course, Cam and George do need to help the private sector create the jobs we need, by implementing the tax cuts and other measures summarised in our previous blog.

But the left's warnings of a second Great Depression are not only wildly overstated, they also ignore the inconvenient fact that UK jobs actually increased during the first one.

PS I know what you're thinking - if there were so many jobs being created during the Depression, how come there was so much unemployment? Well, as always, the new jobs were in the new industries (like cars), and they were not generally located in the same areas as the old declining industries. But abstracting from that, the reason that jobs growth did not shorten the aggregate dole queue back to 1929 levels until almost the onset of WW2 was that the working population was also growing quite rapidly. So while a net 0.6m new jobs were created between 1929 and 1935, the working population grew by around 1.4m. Which just goes to show how rapid population growth may not be the blessing the left make out when they're promoting mass immigration. (There was also the small matter of real wages being stuck at too high a level to clear the market. As described in the book referenced below, reductions in working hours following WW1 had cut worker productivity but had not been matched by pay cuts, so costs per worker increased, making them less attractive to employ. And this problem was compounded by a substantial increase in unemployment benefits, which effectively put a higher floor under wage rates... unless you're a Keynesian of course, in which case you ignore market economics and put the whole thing down to deficient demand and a lack of deficit spending.)

*Footnote - The chart is copied from The Cambridge Economic History of Modern Britain, Vol II, Ch 13. Well worth a read if you like that kind of thing.

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www.gudanggrosiran.com Categories: job creation, Unemployment

Jobs Bonanza

If only they'd thought of getting on their bikes

Listening to the Grun/BBC line, you'd conclude that the Office for Budget Responsibility's forecast of private sector jobs growth had absolutely no chance of coming about.

As you will know, the OBR is forecasting that private sector jobs will grow by 2m by 2015-16, more than compensating for their projected 700,000 fewer public sector jobs. Well, actually, you may not know that because a lot of the reports have been chronically apples and pears garbled. So just to be clear, here are the actual OBR numbers clipped direct from their report:

As we can see, the OBR expects total jobs to grow from 28.89m this year (end-year) to 30.23m in 2015-16 - an overall increase of 1.34m. Since General Government jobs are forecast to fall by 710,000, that implies a growth in private sector jobs of 2.05m.

(Well, strictly speaking, it doesn't necessarily imply that, because the OBR is forecasting General Government jobs, and General Government excludes some bits of the public sector. Exclusions comprise around half a million people working for public corporations - including our nationalised banks - and also a range of contractors like GPs who work for the public sector but for historic reasons are excluded from the formal count - see this blog.  But for present purposes, let's ignore these complexities and focus on the big picture.)

The question on everyone's lips is WTF are these 2m private sector jobs going to come from?

And the answer on Tyler's lips is the same as always - he hasn't a clue.

But as we've blogged many times, given the necessary incentives and freedom, our economy has an excellent record of creating private sector jobs (eg see this blog). And there is absolutely no reason to think it can't do so again over the next 5 years.

So let's put the OBR forecasts into their historic perspective. The following chart shows the growth in public and private sector employment since 1992, the year of Black Wednesday and the pit of the early 90s recession (actually we had to start there because the ONS stats don't go back any further). We've spliced on the OBR's forecasts for employment growth*:

Eyeballing the chart, we can immediately see that the OBR's forecast doesn't look at all unreasonable. Yes, private sector jobs growth does return to its upward trajectory, but it's no more than we saw during the nineties and noughties - right up to crash.

And those of us who recall the early-90s recession remember very clearly how the Grun's doomsters told us we'd entered the world of permanent mass unemployment, and how the evil Thatch had destroyed all the real jobs, and how we'd all have to atone for the excesses of the greed-fueled 80s.

It didn't work out like that. In the subsequent 15 years the private sector created a net 4m new jobs. And yes, a few of them were privatised public sector jobs, and yes, some reflected the final blow-out of Brown's bubble. But most were real-life jobs for real-life people, many in industries that didn't even exist 20 years ago (like internet marketing, currently providing employment to one of the junior Tylers).

The most important thing - indeed, the vital thing - Cam and George must do is to create the conditions for the private sector to create all these jobs. To recap, that means:

1. Cut taxes - especially business and payroll taxes
2. Slash red tape - including restrictions on working practices
3. Cut welfare, abolish the minimum wage - alongside a programme of welfare cuts, we need to junk the minimum wage - low productivity workers in high unemployment towns like Dewsbury simply cannot find jobs at those rates (see this blog)
4. Break up public sector monopolies - especially in the world's boom industries of healthcare and education - private sector providers would soon build expertise and sell it around the world
5. Decentralise - including giving our old bombed out industrial cities charter status (eg see this blog) - remembering that the bulk of these new jobs will be required in precisely those areas
6. Cap immigration - yes, we know we all benefit from some high skill migrants, and we must continue admitting them. But as we've blogged many times, net net Labour's open door policy hasn't made us richer, whereas from Slough to Lincolnshire, it has taken low-skill jobs from low-skill unemployed locals. If we want the new jobs to cut UK unemployment, we need a much tighter immigration cap (including all those foreign "students" who never return home).

Assuming that's what Cam is planning, and assuming he can push it through, and assuming he can resist the temptation to "create" non-jobs in the so-called "green economy", 2m real new jobs should be well on the cards.

And in 5 years time, the BBC will be running stories congratulating the government for presiding over a fantastic unheralded jobs bonanza.

Not.

*Footnote As explained above, the OBR's employment forecasts relate to General Government rather than the whole public sector. For the purposes of the chart, we have assumed the changes will be the same. Note that for the whole period shown we've also reassigned our nationalised banks back to the private sector, where we hope and expect they will soon return.

PS Here's a question for you - how many jobs did the UK economy lose during the Great Depression - the Depression the Grun/BBC/Blanchflower keep warning us we're tipping back into? Was it 1m, 2m, or 5m? Give up? Well, between 1929 and 1935 (ie pre-rearmament) the economy gained - yes, gained - a net 0.6m jobs. Not enough, given the high level of unemployment in the old industrial heartlands, but it was still jobs growth - despite the Great Depression. And those who were prepared to get on their bikes for the new boom towns like Slough and Coventry benefited from it (Data taken from The British Economy 1900-1970, shamefully liberated by Tyler when he left public sector employment many moons ago).

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www.gudanggrosiran.com Categories: cuts, job creation, public sector employment