British Unemployment: Letter from America

Abstract

This paper asks whether there are any lessons to be learned about unemployment in Britain from the United States experience. The fundamental issues to be addressed are embodied in data showing that the relative unemployment performance of Britain and the United States reversed itself between the I9G6os and the I98os. In the early i960s, the unemployment rate in Britain averaged I *9 %, about one-third that in the United States. In the late I 980s the unemployment rate in Britain at 9-5 % was more than one-and-a-half times higher than that in the United States. The paper examines reasons for this. The immediate candidates as explanations for these facts are the changing priorities of government macroeconomic policies. Governments in the past fifteen years have placed greater weight on minimising price inflation and considerably less weight on reducing unemployment than they did four decades ago. This is because governments have been persuaded that their unemployment goals entailed not a constant, but an accelerating rate of price inflation. Hence they have pursued policies that have been aimed first at reducing the rate of price inflation and then at maintaining a constant, low, rate of inflation. However, government macroeconomic policies appear more relevant as an explanation for movements in unemployment over the business cycle than as an explanation for the upward trend in unemployment over four decades. And the distinctive feature of Britain's unemployment is that it increased continually over each five year interval from the first half of the I 950S to the first half of the I98os. What is needed are explanations directed not toward cyclical factors, but toward the trend.