Comment- Public spending alone explains Britain’s job growth

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Commonly, Britain’s relatively positive employment situation is attributed to a far-reaching deregulation of the private sector. Wrongly so, argue British economists. Seemingly outdated Keynesianism is what led to the British job miracle. 

In a comment for the Financial Times, John Edmonds and Andrew Glyn, research fellows at King’s College in London and Corpus Christi College in Oxford, respectively, outline how Europe sees the model of the British economy – in very much the same way that the UK government tries to sell it: “Tony Blair insists that the European labour market must become more flexible with less regulation and lower levels of social protection. He wants Europe to become more like Britain.” They see part of this rhetoric covered by figures recently published by the OECD: “The UK has longer employment hours than any EU-15 country. (…) The UK’s level of product market regulation is the lowest of any EU country – lower even than the US.” But, they argue, this deregulation has not led to a very dynamic private sector. On the contrary, one million jobs in manufacturing have been lost in the UK since 1997. “France and Germany, despite higher unemployment rates, have done much better than the UK in maintaining employment in manufacturing. Between June 1997 and the end of 2004, France and Germany each lost between 5 and 6 per cent of their manufacturing jobs. These figures compare with a reduction of nearly 22 per cent in the UK. “

Edmonds and Glyn point out how employment in Britain’s private sector has slowed down since the turn of the century, even though the government was at the same time increasing public spending, which should have spurred job creation in the private sector. Indeed, they argue, the government managed to create more than half a million jobs in the private sector during the first four years of the new millennium – without public spending, Britain would have experienced a rise in unemployment like other EU economies. “We have been left with the startling conclusion that the public expenditure programme of Gordon Brown, the chancellor, has been responsible for the growth in private sector employment between 2000 and 2003.”

They set these numbers in relation to figures published by the UK Office of National Statistics, which say that 450,000 public sector jobs were lost between 2000 and 2004, and come to the conclusion: “Taking these increases together, it is clear that Mr. Brown’s public expenditure programme has been directly responsible for all the growth in UK employment since 2000. The experience of the last four or five years certainly does not support the idea that the UK’s recent jobs growth has been due to the creation of a deregulated and vibrant private sector. A good old-fashioned Keynesian expansion seems much closer to the mark. Perhaps this is the lesson Europe should learn from the British experience.”


Read the full comment in the Financial Times (registration required).

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