ABSTRACT
Few economists would disagree that the central object of economic policy should be achieving and sustaining full employment; what they debate is how this can be achieved. Economists have traditionally argued that the labour market cleared; anyone can get a job if they are prepared to accept a market price which declines as the level of employment rises. Keynes identified over-saving as a cause of unemployment and introduced the idea that full employment required government intervention to establish and maintain a sufficiency in effective demand. Persistent inflation in the postwar period led to the re-establishment amongst economists of pre-Keynesian beliefs in a monetary explanation of inflation and a clearing labour market and established the notion of an equilibrium ‘natural’ level of unemployment at which inflation stabilises. Monetarism rules out a macro-economic intervention route to full employment and directs policy attention towards reform of the supply side of the labour market as the generator of jobs. However, despite seventeen years of continuous labour market deregulation and cutbacks in social welfare to sharpen work incentives, in Britain unemployment, depending on how it is measured, is currently between two to four times higher than it was in the 1970s.2
