Belfast Telegraph

Thorny wage issue must be addressed

By Brendan Keenan

I used to get regular correspondence - as did many others - from a man who believed we were all missing the point about unemployment: that with technology it meant there was just less demand for labour.

I think he may have given up; and it is true his theory failed to get a good airing. The reason was probably that it looked suspiciously like what is called the 'lump of work fallacy'.

It is regarded as a fallacy by most economists, who say that work can expand to fill the demand if the right conditions are in place.

At a basic level, it is clearly true that there is no fixed lump of work. The population of most EU countries soared during the 20th Century, and the labour force grew even faster with the increase in female participation, but unemployment did not rise in tandem.

But neither is it low. Figures last week showed unemployment in the eurozone approaching 11% - the highest since 1997.

That date of 1997 is significant. EU economies grew strongly from then until 2007, and some entered bubble territory. A decade-long boom is a rare occurrence and was probably one of the warning signs, which raises the troubling question: why did it take a bubble to get the kind of unemployment rates which most of us think should be the rule rather than the exception?

The recent annual report from the International Labour Organisation gives a striking picture of the impact of that boom. The ILO is a United Nations body which analyses global unemployment and labour policy.

From the late 90s to 2007 the numbers classified as unemployed fell from 220m to 98m.

The Irish case is instructive. Unemployment reached a low of 3.5% in 2000, as the factors which drove the Celtic Tiger years came to an end.

Now the jobless rate is 14%, alongside significant emigration.

Even those who expect the economy to recover also expect modest growth rates which would take years to make a significant dent in the figure.

To really make a difference, Europe has to revisit the thorny questions of the relationship between productivity and incomes, and try harder to make sure the latter does not exceed the former.

That is not just wage income. Where my correspondent may be right is that the gains from technology, where fewer workers produce more, appear first as higher profits.

The issue baffled even Maynard Keynes, who predicted we would deal with it in the 2000s by working a lot less. That did not happen, and answers remain elusive. We could start, though, with the obvious conclusion that, when it comes to work, the present tax and wage systems are not working.