NAIRU…and all that

By Peter Barnard

As the coalition government unveils its plans to “get people off welfare and back to work” via the introduction of the workhouse without the walls, there is a fly in the ointment prescribed by Mr Iain Duncan Smith, and it is to be found on page 77 (para B.15) in the Pre-Budget forecast published by the Office for Budget Responsibility earlier this year :

“The prospects for the trend employment rate can be split into the outlook for the ‘structural’ unemployment rate, or non-accelerating inflation rate of unemployment (NAIRU), and the outlook for the labour market activity rate. For the purposes of the projection the NAIRU is assumed to be around 5.25%, which is broadly in line with the unemployment rate prior to the recession, and to remain flat over the projection period. “

The ‘projection period’ in the PBR was up to and including 2014/15.

In passing, the OBR also remarked (in the same paragraph) that the UK has “below average unemployment protection legislation”, but that’s another subject…

The remit (set by government) of the Monetary Policy Committee of the Bank of England is quite specific : non-accelerating inflation, with a target of 2.0% as measured by the Consumer Prices Index.

In other words, and as surely as night follows day, an unemployment rate of 5.25% is unavoidable : about 1.5 million people will be unable to find work between now and 2014/15 because the work and jobs just won’t be there.

If this is indeed the case, government, and the Labour opposition, need to ask themselves a very basic question: if they are deliberately accepting one and a half million unemployed as a consequence of policy, is it equitable that those who find themselves in this unfortunate position should be denied the state-provided wherewithal to maintain human dignity?

And, another basic question: what kind of a monster of an economic framework has been created in which “policy makers” accept, with apparent equanimity, an unemployment rate of more than one in twenty of the available workforce?

Finally, a passing and related thought: Adam Smith, as ever, had his finger on the pulse when considering human dignity:

“By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life… But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England…Under necessaries, therefore, I comprehend not only those things which nature, but those things which the established rules of decency have rendered necessary to the lowest rank of people…”

Well, fancy that. There is such a thing as “relative poverty”, and it isn’t a modern lefty invention.