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Jobs to do

Labour has rescued the banking system. Now it's time to tackle the spectre of rapidly rising unemployment

Rescuing the banking system from collapse was vital, of course - and we should probably give ministers more credit for saving the economy. Meanwhile, many on the left have been devising new policies backed by increased government spending. Yet a large problem remains to be tackled: unemployment, which could well exceed the levels seen in previous recessions. Labour needs to ensure that a recession under its watch will be different from those experienced under the Conservatives.

David Blanchflower, a member of the Bank of England's monetary policy committee, gave a speech on the subject this week at Stirling University. Unemployment tends to lag changes in GDP, which is why when growth picks up we can appear to have a "jobless recovery". But this recession might be different. Jobs are being lost rapidly and almost in line with changes in GDP. Blanchflower believes that unemployment could rise to "close to 10% by the end of 2009", with perhaps over three million unemployed by 2010. That means joblessness will match levels last seen in the early 1980s and 1990s. In 1984, the unemployment rate peaked at almost 12% and rose to almost 11% in 1993. At the end of last year, it was 6.3% and rising.

High unemployment can cause a downward spiral of forced house repossessions leading to falling property prices and more negative equity, with consequences for the banking system. It also threatens the good work done to fight poverty and reduce inequality. Despite Jesse Norman's pessimism, there have been real gains in this area. Indeed the joint LSE and Joseph Rowntree study he quotes suggests income inequality and poverty would have risen rather than decreased had Labour not acted – with the gap between high and low incomes much wider.

The negative impact of unemployment is pervasive. As Blanchflower said, it is linked with "malnutrition, illness, mental stress, depression, increases in the suicide rate, poor physical health in later life and reductions in life expectancy." It can lead to higher crime rates, particularly theft. Blanchflower emphasised the damaging impact it can have on young people, often leading to lower wages in later life.

Labour has to do everything it can to limit the rise in unemployment. This will not always mean bailouts. Much money was lost in the 1970s throwing good money after bad, with workers still being made redundant. Blanchflower proposes an Obama-style fiscal stimulus (equivalent to £90bn) and policies to keep young people in education until the age of at least 18. He advocates investment in "shovel-ready" infrastructure projects, which will come with jobs, and a boost in funding to the public and non-profit sectors for two years so they can fill job vacancies. He also suggests tax incentives to encourage job sharing. I believe government should also be the "employer of last resort".

Ministers should read Blanchflower's speech: Labour must make it clear now what we will do to address the challenges people will face in the months to come. A Labour government must be both radical and proactive when it comes to fighting rising unemployment.

This article previously appeared on the Guardian's Comment is Free web site.
Stephen Beer, Sunday 1 March 2009
Guardian Comment is Free 01/03/09, 01/03/2009

Not an easy task given uncertainties, especially if energy and commodity prices do fall later in the year. Ultimately, radical economic reform required.
Central banks are struggling to head off general inflation while dealing with price shocks that will be negative for growth. They waited too long, which has made their tasks more difficult.
The Bank of England has raised interest rates, but that does not mean it has been most effectively managing inflation risks.
The Bank should signal it will act if higher prices look likely to translate to higher inflation rate.
The IMF's Fiscal Monitor is actually quite radical.
Spare a thought for finance ministers, and the opposition counterparts who aspire to replace them. The conventional wisdom was that they should at least make an attempt to follow fiscal rules. Now, there are no rules.
My letter in the Financial Times on the need for a framework for economic policy decision-making.
Responding to Brian Griffiths' article in The Article on the risks of inflation.