Full employment or full of inactivity?

In the economic and political world, the term ‘full employment’ has come back from the dead. It was a prevalent term back in the days of Franklin D Roosevelt in the 1940s and Martin Luther-King advocated for it in the 1960s. It also crept back into political parlance in the dying days of George Osborne’s chancellorship in the UK around 2014. Today, we’ve heard it reemerge in the US, where the Fed has said that the US economy is “at or a little beyond full employment”, to some degree in the UK, and it hit the headlines a few weeks ago locally, prompted by a 280-character tweet by yours truly.


So, what does full employment actually mean? Firstly, it is a well recognised technical term in economics. But as is often the case in the economic world, there is actually no universally agreed definition. It’s perhaps easier to understand what it isn’t. It doesn’t mean that there is no unemployment and it definitely doesn’t mean that everyone has a job.

The broad consensus is that there is a point at which pushing the unemployment rate lower isn’t actually desirable, as it results in inflation – particularly wage inflation – and when you reach that point, this is full employment. The actual rate will differ by country, for example, the US is deemed to be there currently at 4.1 percent unemployment. Sir William Beveridge, the architect of the UK’s welfare state thought 3% would represent full employment. Today that figure, or perhaps slightly below, would mark full employment in the UK and Germany.

In terms of Northern Ireland, the mention of the term full employment provoked much debate and reaction – and this is perhaps understandable. The reality is that Northern Ireland’s labour market is a very complex thing. For one, despite the fact that Northern Ireland’s unemployment rate at 3.5 percent is currently below the UK’s and the US’s rate, and on a par with Germany’s, and the number of people working is at a record high, in reality these figures present an overly positive picture. In some respects, it is not unlike the Republic of Ireland’s much discussed, very flattering GDP figures.

Yes, a number of the labour market’s key statistics have improved considerably over the past decade, but that just masks things that have gone the other way. These headline figures don’t give a true picture of what is going on. They don’t tell you what kind of jobs people have, what hours they’re working, what wages they’re earning, nor how productive they are. We also have a very high economic inactivity rate at 27.9 percent; meaning that over one-quarter of people of working age in Northern Ireland are either out of work or not actively seeking work for a range of reasons. While we could boast about having a superior unemployment rate to the UK, it’s worth remembering that our employment rate is vastly below the UK’s and the UK has never had an inactivity rate as high as ours is currently.

But despite all of this, there is still reason to believe that we may actually be close to ‘full employment’ – albeit in a low growth, low productivity economy. Northern Ireland’s unemployment rate recently hit a record low of 3.2 percent (a whisker away from Beveridge’s magical 3%) and I believe that it is currently at or close to as low as it can go. From an unemployment rate perspective, this is as good as it gets, and the likelihood is that in a year’s time, the unemployment rate will likely be higher than it is now. When it comes to economic inactivity, this is a side issue (albeit a very important one), as it is structural and therefore a long-term challenge which cannot provide a solution to the immediate recruitment needs of employers.

In terms of other evidence, we are seeing increasing signs of intense labour shortages, skills shortages, and wage pressures. In the latest NI Chamber Quarterly Economic Survey, about three-quarters of respondents said that they are currently experiencing wage pressures. This is particularly the case in sectors such as ICT and hospitality where employers are experiencing severe skills shortages and intense competition for staff, which is forcing up wages. Overall, many firms in other sectors including manufacturing, services and food and drink are experiencing similar, if not as intense, pressures. All of this points to technical full employment, of a sort, being not too far off. Indeed, the latest NIJobs report with Ulster Bank points to job vacancies having never been higher.

However, the reality is that in many respects, the term full employment is actually a red herring. This is because full employment isn’t necessarily a good thing – it isn’t the sweet spot of labour market utopia that many people might think, or that it might have been in the past. In today’s complex labour market, full employment actually means a lot less than it did yesteryear. Having a job in the past was almost binary – you either had one or you didn’t. In today’s world, there are so many different kinds and types of jobs, that this arguably matters much more than just having a job, with productivity being key.

Today many people are registered as being in work, but they could actually be underemployed, with temporary jobs and zero hours contracts being relatively common. In the past 12 years, Northern Ireland’s private sector has created 68,000 jobs (+14 percent) whereas private sector output remains where it was at the end of 2005. Full-time private sector wages, when adjusted for inflation, are where they were in 2003!

Indeed arguably, in the internationally open labour market of today, Northern Ireland should be more concerned with full employment elsewhere. Full employment in the rest of the UK and in parts of the Eurozone will lead to skills being sucked out of our labour market which will exacerbate problems here. EU nationals have been critical to Northern Ireland’s jobs market in recent years, and without them we wouldn’t have hit our recent record low in inactivity and record high in employment.

In conclusion, whether you think Northern Ireland is close to ‘full employment’ or not, what is beyond doubt is that Northern Ireland is more full of jobs than it ever has been before. Just don’t ask about quality, productivity, or wages.

This article appeared in the Irish News on Tuesday 1st May 2018.

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