Did we ever have full employment? It seems like a simple question – just a matter of checking the historical data and answering yes or no. But strangely, it is not so simple. And nor it is just a curiosity of history. It is a question loaded with contemporary significance.

The Long Boom

The golden era of full employment was the Long Boom (or the Trente Glorieuses in France – because everything sounds better in French!) which followed the Second World War and lasted until the 1970s. In Australia, with post-war construction and Keynesian economic strategies dominating economic management, the unemployment rate averaged 1.9% from 1941 to 1974 – with most of that accounted for by frictional unemployment as people changed jobs. Further, the employment model was largely full-time, under-pinned by a centralised wage-fixing system and industries protected by significant tariff barriers (as well as the expense of pre-containerised shipping – which also meant mass employment on the waterfront).

So, question answered. We did, for all practical purposes, have full-employment in that long boom. Since then, the world has changed. Unemployment has generally hovered between 5% and 8%, peaking in December 1992 at 11.2%, and a different policy mix is clearly required to re-establish full-employment in the modern economy. But the data clearly suggests that it is possible to have full employment in a capitalist economy.

Hmmm – not so quick. Firstly, given the historic record before and after the Long Boom, that period may have simply been an aberration – a one-off event caused by a unique coincidence of factors which can’t be repeated. More importantly, it should be remembered that these very low unemployment rates were obtained in part by culturally or legally excluding parts of the workforce.

Women who had been employed through the Second World War were forced out by cultural norms, or social pressures to give up their jobs for returning heroes or later for men who had families to feed, or women were simply barred from work. Indeed, the marriage bar in the Commonwealth public service (and in other major employers like banks) lasted officially until 1966, and probably informally in some instances for much longer. Women like my mother simply lost their jobs on marriage and were out of the workforce for years, but they were not “unemployed”.

Similarly, given the long history of Aboriginal exclusion, wage theft and the ambiguous labour force status of station workers and domestic servants, it is likely that the unemployment data did not capture the reality of Aboriginal employment and unemployment.

And many people with disabilities who are now in the labour force (but not necessarily employed) were kept at home and either not expected to work, or placed in sheltered workshop “employment”, both potentially hidden forms of unemployment.

So, on closer inspection the golden age of full employment was not – at best it was full male employment with caveats. To refer unproblematically to the full employment of the long boom is to take a gender-blind and privileged view of history.

Participation Rates and Full Employment

The crucial factor here is the labour force participation rate, that is, the proportion of the adult population in the workforce. The graph below shows the significant rise in participation rates since that golden age, from 60.2% of adults in the workforce in 1966 rising to 66.5% in January this year. This growth was driven largely by the increasing proportion of women entering the workforce, from 36.6% of adult women in the workforce in 1966 to the current 62.1%.

This increasing participation rate is important because, if today’s participation rates applied in 1966, then there would have been 515,000 more people in the workforce (my calculation from ABS Labour Force data). If there were same number of jobs at that time, then the unemployment rate would have been 11.1%, not the 1.8% in the ABS data. Again, not exactly the “full employment” of legend.

Of course these counter-factual statistics are flawed because if the labour force participation rates were higher and those hypothetically unemployed people were actually “in the workforce” then the price of labour may have been lower (especially as this was pre-“equal pay” so women were cheaper to employ). Further, expenditure patterns would have been different if some of those people found employment (and the non-market production of cooking, housework and childcare may have been monetised sooner creating more jobs). All of which may have created more employment.

The counter-factual data therefore does not definitively give us a negative answer to the question of whether we ever had full employment. Rather, it reminds us that the statistics are not neutral. The statistic data, like the very notion full employment, is in part socially and politically constructed by the social patterns and expectations of the time.

Theory and Policy

This social construction immediately makes me suspicious of any economic theory that posits employment dynamics (full or un/under-employment) as being driven solely by market dynamics, for example aggregate supply and demand.

At one level, this is a critique of most macroeconomic theories, but the proposition that we possibly never really had full employment is particularly problematic for Keynesian and post-Keynesian theories. As noted in my previous post, such theories posit full employment as not just possible, but as the aim of macroeconomic policy. It is also those theories which tend to hark back most to the golden era of “full employment” for real-world legitimacy.

Of course, the historical record does not definitively rule out full employment (even if we did not have it in the past, it may still be possible in a theoretical future), but the long-term record is not promising.

Given the enormous social and economic costs of unemployment, the idea that full employment may not be possible is hard to stomach. But simply wanting it does not make it possible.

By contrast, both the Monetarist-neoclassical and Marxian-classical schools of thought posit some level of unemployment as being inherent in the system – the former with a NAIRU, the later with a reserve army of unemployed. (Again, see previous post).

What is at Stake?

If the mainstream theory or the Marxists are right, then the post-Keynesian full-employment approaches create false hope and may be economically counter-productive, but of course if full employment is possible, then both mainstream economics and Marxist theories may be selling the unemployed short. That is what is at stake in the curious debate over historical full employment.

That said, I do not think that accepting that full employment may not be possible is giving up on the unemployed. Certainly, as I suggested previously, the idea that there is a natural level of unemployment has been deployed by neoliberalism to undermine progressive interventions in the economy (unions, minimum wages, welfare) and limit government spending.

However, the idea that unemployment is inherent in the economic system can equally be deployed to undermine the stigma of being unemployed (because someone has to be unemployed) and to create arguments for minimum income guarantees not attached to workforce participation.

The policy approaches here and are as debateable as the political economic theories which underpin them. I am simply suggesting that, at a minimum, we might want to have those debates without reference to an idealised era of full employment which was socially constructed at best, and fictitious at worst.