COMMENT 1

Slaying the beast nemployment remains the most potent reminder of the fact that markets have draw- backs. For the vast majority, who see unemployment as unwanted and involuntary, it U is also the greatest social disaster that economies can produce.

Bizarrely, many economists have problems with this notion. Unemployment remains a grey area because in the strict neo-classical paradigm taught to students, it should not really happen. Much of the talk of markets being over-regulated or people pricing themselves out of jobs has that feel about it. Somehow it is the unemployed who are to blame.

While rigidities in the labour market are obstacles to the free market working, many of them are not imposed by some rampaging trade union movement but are there for the mutual benefit of worker and employer. It is not clear that dismantling them is sensible or will be effective in the long run. A free marketer would simply call for more deregulation and lower wages but this is unsustainable as a political solution in Europe. As Richard Freeman observes, the costs associated with it are already causing problems in the USA.

What relevance in any case does all this have to the very high unemployment levels found throughout Europe today when the prime cause is clearly a collapse in demand for labour?

There has been a ridiculous tendency to deride those who propose demand stimulation policies to create jobs. But the power of such policies goes beyond an ability to reduce unemployment to something closer to its 'natural' rate. As Jonathan Wadsworth shows, even the unemployment that arises from structural shifts in demand away from unskilled labour can be tackled partially if overall demand is high enough. And Rebecca Driver and Simon Wren-Lewis show clearly that demand polices can be very effective even in the medium term, if only inflation does not take off. The lesson here is clear: do not give up on demand policies, but design ones that work given the increasingly intemationalised world we live in and design supply side polices -on wages, productivity - that counter supply bottlenecks and allow sustained growth and job creation.

But this is not enough: reforms of the detailed working of the labour market are needed that are not traditionally on the Left agenda. Work sharing involving income sharing will be essential if, as Paul Gregg argues, we are to create jobs for everyone rather than longer working hours for a few. And the power of the unemployed must be strengthened. Solving unemployment means confront- ing these distributional issues .

Where then does this leave full employment as a strategy? Is it credibile when few believe we will ever retum to the 2 per cent days of the 1960's and when, at present, inflation in most countries starts to rise when unemployment is still uncomfortably high?

It is an important concept in showing what our objectives are and is a key corrective to the obsession with inflation. It is right that full employment should be our aspiration: perhaps one day it can become a realistic commitment. Unemployment in the UK is at last falling - even if many of the new jobs are less satisfactory than the lost ones. The Left's perspective is that getting it as low as we can and keeping it there comes at the top of our priority list.

DAN CORRY

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