Low pay is a cause of stagnation, not a consequence of it.

Another 'here's tae us' press release from the Scottish Government on jobs. “The employment rate is now higher in Scotland than in the other four nations of the UK”, it proclaims, “whilst the unemployment is now lower than in any of the four nations of the UK”. Leave aside whether there are four nations in the Union, the last time I looked there were only two. Unemployment in Scotland is indeed down 7.000, which is indeed remarkable given the sluggish recovery and the shake-out of jobs in the hight street.

Funny, though, how it's always Westminster's fault when unemployment goes up, but when it goes down down it is thanks to the wisdom of the SNP government. That's politics of course. Governments always try to own good news and disown bad. And it's hard to argue with figures showing that more than 2.5 million Scots are now in employment, which means that nearly 50,000 jobs have been in the last quarter alone.

However, there is a dark side to this good news story of happy Scots toddling off to work in unprecedented numbers. They may be earning, but they're not spending.      An inconvenient statistic this week revealed that that retail sales in Scotland have not been recovering in the way they have been in the rest of the UK. The difference is quite dramatic. As the Herald reported yesterday, the total value of retail sales was up 0.8% last month, year on year, as against 3.4% in the UK.

Retailers always talk about this in terms of “consumer confidence” as if people in Scotland are wandering around in a state of dismal depression at the weather and keeping their purses tightly shut out of spite. The Scottish Retail Consortium says that “in terms of consumer confidence, London is certainly weathering the difficult economic conditions better than elsewhere in the UK”. Well, yes, it would do, since that's where all the money is. Look at London house prices which are rising dramatically as they fall elsewhere.

There is a very obvious reason why people outside the metropolis are spending less: they are earning less. The Institute for Fiscal Studies confirmed yesterday that we have lived through the deepest and longest squeeze on earnings in a century. Far worse than the 1990 recession or even the 1930s. Real earnings are 15% lower today than they would have been had the banking crisis not wrecked the British economy after 2007. It's the biggest five year fall in earnings in history, according to the IFS. One in three workers has suffered a cut or freeze in their pay packets in real terms since 2010.

Zombies. Can Scotland escape the economy of the living dead.

Like me, you probably don't pay too much attention to the monthly unemployment figures, since they don't seem to be going anywhere in particular. In fact, something quite extraordinary is happening, which is transforming the world of work, making a nonsense of government policies, like the much criticised Work Programme and turning a once prosperous and relatively secure society into one driven by insecurity and debt. It also poses a very serious question about Scotland's future.

You see, unemployment - 2.5million - is a lot lower than it should be. Indeed, the numbers out of work have been falling even as the country heads into triple dip recession. Unemployment rose to 8% in November 2011 and has been falling more or less ever since. Yet in the recession of the 1980s, which was mild compared to this one, unemployment rose to 12% and stayed there.

Stranger still, unemployment in Scotland has been running at a lower rate than in the UK. This month, 7.7% of Scots were out of work, against 7.8% for the UK. In the 1980s, unemployment in Scotland soared to 15% - almost double what it is today and far ahead of the rest of the UK. Indeed it was nearer 18% in the West as Scotland's industrial heartlands were ripped out and thrown on the scrap heap. So, although this recession has lasted twice as long as the 1980s and is far deeper, unemployment is falling when it should be rising.

This is all exceeding strange, because I defy anyone to look around Scotland today and regard it as a country in economic recovery - despite the claims made by the Scottish government, who can't seem to decide whether Scotland is being dragged down by the UK Chancellor, George Osborne's austerity or being held aloft by Alex Salmond's Plan Mc B.

What has happened is something we haven't seen in Britain since the 19th Century: a productivity recession, in which the economy is going back in time. The reason unemployment hasn't increased is largely because people are accepting lower wages. Pay (except of course for bankers) has been falling by 1% a year, in real terms, which may not sound like much, but equates to around £1500 in reduced income for average households so far, and earnings will continue to fall until 2018 at least. This is unprecedented.    Firms are are using cheap labour instead of new machines - which is why productivity is falling in Britain. We're getting poorer by making ourselves less efficient. This is why those high street shops have all been closing and why Britain isn't recovering through exports, despite the fall in the value of the pound.

This only sounds counter-intuitive because our political culture is still essentially neo-liberal and assumes that if you hold down wages the economy must do better. In fact, quite the reverse is the case. Low wages breed economic stagnation because worker/consumers lack money to buy goods and firms have no incentive to apply new techniques and machinery because labour is so cheap. That's why this depression is unlike any this century. You have to go back to the 1870s to find a recession as long and as deep - though even then industrial output continued to grow through the application of new technologies. Coalition policies today are taking us back to the days when people wore top hats and the government was run by ex public schoolboys. Oh - I forgot, it already is.

Why is unemployment not an election issue?

On Wednesday I was sitting staring into space, wondering what I was going to write about this week. The press were preoccupied with mounting debt, and the creeps at Strathclyde Passenger Transport circumnavigating the globe at our expense.  Then my phone rang.  It was a BBC producer wondering if I would come and talk about why unemployment was no longer an issue. Now, that’s a very interesting question.

  Hardly anyone seems to think that unemployment, currently running at 2.5 million in Britain, is going to be a key issue for the general election.   An issue, yes, but hardly a dominant one.  Yet back in 1979, the last time a refreshed Tory opposition challenged  an incumbent Labour government after an economic crisis, unemployment was THE number one issue.  “Labour Isn’t Working” said that Saatchi and Saaatchi Tory ad, possibly the most  infamous election poster of all time.  Unemployment then was only 1.4 million.  

    True, the unemployment figures were calculated rather differently in 1979, but that doesn’t alter the point.  The return of mass unemployment has not been the burning issue it was in the past.   In 1979, 53% of voters believed unemployment to be most serious issue facing the country against only 30% today, according to Ipsos Mori.   Yet unemployment really is back in a big way.  The slight decline in the UK figures last week ( they continued to rise in Scotland of course) by no means indicates that joblessness has peaked.  There has been a huge increase in underemployment, with over 7.6 million on part time working.  Economic “inactivity” is also up - the numbers who have given up looking for a job, like students, long term sick etc. has risen to 8.8 million.   Hundreds of thousands of workers have accepted big reductions in pay in order to hang onto their jobs.  One in five young people is unemployed.  And the Chartered Institute of Personnel  and Development warns that a new shakeout of employment is almost inevitable later this year because of the sluggish economic recovery. 

   So, why is unemployment not an issue?  Make no mistake,  a lot of people are really suffering. Ask yourself: could you live on £64 a week jobseekers allowance?  Britain has some of the lowest benefit rates in Europe. In Ireland, unemployment benefit is nearly three times what it is here.  Many British workers have exhausted their savings and are hitting rock bottom, as the dramatic rise in the claimant count indicates.   The pain is partly mitigated by he various government schemes which have frozen mortgage payments and credit card debt.  But these subsidies can’t last indefinitely, and when they unwind, we could be facing a huge social problem. 

  But where’s the public outrage?   Where were the ministers squirming on Newsnight?   In 1991 when the Tory Chancellor, Norman Lamont said that unemployment was “a price worth paying” for economic recovery he was rounded on by the media.  Now no one bothers to compute the price of joblessness. It’s as if we don’t think that governments have any responsibility any more - even though Gordon Brown said, some years ago, that “full employment” was the government’s goal.  

    In the 1970s and 80s, joblessness was regarded as THE great social evil.  The prospect of just one million unemployed was enough to make Ted Heath, the Tory PM, radically change his economic policy in 1971.  The Labour PM, James Callaghan, came to grief over it in 79.   Under Margaret Thatcher’s monetarist policies in the 1980s, unemployment soared and so did social unrest, culminating in the miners strike in 1984/5. Now it’s back, and we all seem to be just accepting it as inevitable.  Even the response to the Corus ending steel-making in Redcar after 150 years has been muted, though a ballot on industrial action has been called. 

   So, what’s changed? Well, for one thing the nature of employment has.  Instead of being in large workforces in manufacturing industry, workers today are largely employed in small companies of under 50 often in poorly organised service occupations.  The great strikes and factory occupations in the 70’s and 80’s, like Upper Clyde Shipbuilders and the British Leyland Bathgate, were mobilised like military campaigns.  The foot soldiers were workers who all knew each other, lived in the same streets, had similar status and a great sense of class solidarity.  Now they are dispersed across all manner of occupations, as security guards, supermarket shelf-stacker, or in call centres.  They also have mortgages, which most didn’t in the 1970s, and big debts which put a dampener on industrial militancy.  And whisper it, but the influx of several million poorly unionised immigrant workers, willing to accept poor conditions and low pay, has sapped the strength of British  labour  Instead of union militancy, we have apathy and incapacity benefit.  As a result, trades unions are not the political force they were in the 70s and 80s. The last attempted strike action was the farcical BA non-event at Christmas.  Before that, it was power station workers downing tools in favour of “British jobs for British workers”. 

   The other big difference is that the public sector unions have not yet been mobilised in this economic crisis.  The recession has hit in the main the private sector.  Employment by the state has actually risen by around 100,000 since 2008, during the deepest recession in eighty years, and wages in the public sector have continued to rise, even as non-state workers are taking pay cuts.    In the past, public sector workers - nurses, teachers, fire-fighters - had a deep sense of grievance at their poor pay and were leaders in industrial unrest.  Nowadays they are a relatively privileged class earning higher wages and with better pensions than their private sector equivalents. 

   However, this might all be about to change.  If and when the next government tries to tackle Britain’s unsustainable public deficit, sacking hundreds of thousands of public sector jobs, then unemployment and industrial militancy are likely to stage a dramatic comeback.  There have already been threats of strikes from public sector unions at the mere suggestion of a pay freeze - but much more than that will be required to balance the government books.  This may explain why Labour, which tends to do rather badly in times of industrial distress, has held off cutting public spending until after the election is safe and gone.

    So politicians may be fooling themselves if they think unemployment is no longer an issue. There is a lag in social awareness.  It has taken some time for people to remember what it actually means in terms of ruined lives and social dislocation.  If we think society is broken now, just wait until next year and the year after that.  When people lose hope they become desperate - and the clock is ticking.