Labour’s failure to grasp the essentials of youth unemployment

A piece in the New Statesman yesterday by Stephen Twigg and Liam Byrne seeks to summarise Labour’s Youth Jobs Taskforce, led by Alan Buckle, deputy chairman of KPMG: it’s interesting not for what it says but what it omits.

Assuming this piece represents it correctly, the report concentrates entirely on supply-side issues.  Twigg and Byrne talk about the need for apprenticeships, for business and schools to work together, for stimulating interest in the world of work earlier in the education process, for those completing school education to have a long-term career plan.  They describe the decimation of the careers service.  If you accept the underlying premise of that education is simply a preparation for employment (which I don’t), it’s fine as far as it goes; nobody would argue that getting the supply-side right is not important, and Labour in office actually had quite a good track-record. It was one of Gordon Brown’s abiding obsessions.

But that’s not enough.  The demand side is wholly neglected.  The simple fact is that, at the moment, there are no jobs – and no amount of supply-side tinkering is going to change that unless the aim of that is to reduce labour costs, i.e. wages.  The silence on the demand side exposes the fundamental failing in Labour’s economic thinking – that it simply is not prepared to use the power of the state, through increased public expenditure and borrowing at a time of unprecedentedly low interest rates – to stimulate employment.  It’s not as if there isn’t work to be done; there is no more obvious example of free-market failure than Britain’s appalling housing crisis.  Labour is still officially committed to sticking to George Osborne’s spending plans in the 2013 Comprehensive Spending Review, which means that it is also ruling out the kind of decisive state intervention needed to stimulate the economy.  Curiously, it is widely reported this week that Ed Balls is to travel to the US to meet Larry Summers to learn the lessons of why the US economy has contracted less than Britain’s – a move that suggests the door is open to a more expansionist fiscal policy.  But a far stronger commitment is needed.

Moreover, Labour remains committed to the coercive policies of workfare, introduced when it was last in office.  It cannot be emphasised strongly enough that workfare is simply bad economics – effectively using public money to cut the wage bills of big companies, in a way that undermines the small, locally-based businesses that are most likely to produce sustainable growth.  The utterances of Liam Byrne still resemble nothing so much as the Victorian ideal that poverty is about individual moral hazard, not collective economic failure.  The arguments favouring a citizen’s wage over a coercion-driven jobs guarantee are set out here, but Labour appears simply  to lack the economic imagination to understand this.

As I said at the outset, this report is principally interesting for its omissions.  The coalition’s economic policies are, for most people failing; with high unemployment and real wages in freefall for those who have jobs, and the last bastions of employment protection being withdrawn. There is an economically credible, empirically grounded and potentially hugely popular case for economic expansion; but Labour continues to lack the intellectual and moral courage to make it.  And without it, Labour’s youth unemployment proposals are so much hot air.

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