The Law of Unemployment: Has Equality Law Been Captured by Friedman’s Ideologues?

Abstract

The second half of the twentieth century saw in Western democracies the rise of individual rights at same time the demise of collective ones. Within this pattern, we saw collective labour rights give way to individual employment ones. What is particularly noticeable over this period is the paradoxical coincidence of growing employment equality rights alongside increasing economic inequality. Many would argue that the existing equality laws are not strong enough. However, it is arguable that in fact equality law has been an instrument of economic inequality, wielded by Friedman’s ‘cronies’ (beginning most conspicuously with Reagan and Thatcher). It does this by increasing the labour pool, making it easier for employers to expand and contribute to economic growth, but also facilitates the cruel weapon of unemployment to control inflation. This chapter details how particular anti-discrimination laws facilitate inequality, and argues that the one protected characteristic, social economic status, should be included within the equality law scheme.

1. Introduction

‘Discrimination law, in its majestic equality, forbids discrimination against the low paid, unemployed, and homeless’.¹

The second half of the twentieth century saw in Western democracies the rise of individual rights at same time the demise of collective ones. Within this pattern, we saw collective labour rights give way to individual employment ones. What is particularly noticeable over this period is the paradoxical coincidence of growing employment equality rights alongside increasing economic inequality. Many would argue that the existing equality laws are not strong enough. However, it is arguable that in fact equality law has been an instrument of economic inequality, wielded by Friedman’s ‘ideologues’ (beginning most conspicuously with Reagan and Thatcher). It does this by increasing the labour pool, making it easier for employers to expand and contribute to economic growth, a value seemingly unquestioned in public debate.

Sex discrimination law, for instance, in targeting 50 per cent of the population, hugely increases the labour pool, first, by encouraging women to enter the labour market, and second, in addressing the obvious problem with the first with maternity rights, enabling women to work and bear children, saving the labour market from generational shrinkage. The latter—notably—produces a backlash from right-wing populists, insisting that child-bearing is an individual choice and the costs of which should be borne by that individual.

Whilst race (including nationality) anti-discrimination laws quite rightly raise a nation’s conscience over the evils of racism, they facilitate immigration, enabling the demonisation of those who object to it on economic grounds, such as depressing market wages for those already least well off. This again fuels populism, indeed, paradoxically, the rise of racism, or even fascism. Disability discrimination policies have brought persons from institutional, and subsequently, marginalised existences into the workplace, again broadening the labour pool.

It is argued below that equality law is vulnerable to misuse by cynical governments, with resulting further economic inequality. It does this by broadening the labour pool and using the consequent unemployment as a method of achieving other goals, none of which favour the unemployed.

2. Individual rights and the paradox

The second half of the twentieth century saw in Western democracies the rise of individual rights at same time the demise of collective ones. For employment rights generally, the first significant move was the Redundancy Payments Act 1965, followed by the Industrial Relations Act 1971.

The concept of a compulsory redundancy payment was first introduced in the mid-1960s as part of a series of measures, including such things as Selective Employment Tax, to encourage the mobility of labour and reinforce the manufacturing sector of British industry. The redundancy provisions were contained in the Redundancy Payments Act 1965. The Act was devised with a number of basic objectives in mind:

• to cushion the effect of unemployment by providing compensation, and to reduce resulting hardship, although finding immediate re-employment does not disqualify from right to payment.

• to provide financially for resettlement or retraining.

• to compensate for loss of notional ‘property rights’ in job.

• to encourage job mobility, and redistribute economic skills. The provisions are now to be found in the ERA 1996.

Notable here is the encouragement of job mobility, the flipside of which is permanence and job security. Hence the introduction of compulsory redundancy payments to ease the pain, thus encouraging mobility. Nonetheless, the move away from ‘jobs for life’ for ordinary workers would have an impact upon their wealth, notably from the inability to make long-term planning, notably stepping onto the housing ladder with a mortgage.

The avoidance of collective industrial action was the main thrust behind the introduction of the right of individual workers not to be dismissed unfairly. This cuts across the common law position that the rights of an employee vis-à-vis their employer extended only to any contractual notice period. In other words, lawfulness of the dismissal depended on a breach of contract (dismissal without sufficient notice); fairness did not come into it. This right not to be unfairly dismissed was introduced by the Industrial Relations Act 1971, the express purpose of which was to ‘ameliorate’ unofficial strikes and industrial action [3]. This was a clear indication of the movement from collective power to individual rights.

For employment equality in particular, a growing range of protections began in the 1970s, with, the Equal Pay Act 1970, and the Sex Discrimination Act 1975.² This was followed by the Race Relations Act 1970, with similar anti-discrimination protection extended to disability (1995), religion or belief, and sexual orientation (2003), and age (2006). The first significant disability legislation was the Disability Discrimination Act 1995.

The paradox is that as these individual rights bedded in, income inequality grew. The Equality Trust concluded:

‘The UK became a much more equal nation during the post-war years [1]. The data available shows that the share of income going to the top 10% of the population fell over the 40 years to 1979, from 34.6% in 1938 to 21% in 1979, while the share going to the bottom 10% rose slightly.

Since 1979 this process of narrowing inequality has reversed sharply. As shown in the graph below, inequality rose considerably over the 1980s, reaching a peak in 1990. Since 2010, income shares have been relatively unchanged (Figure 1)’.³

Figure 1.

A snapshot of this rise.

Similarly, perhaps the most credible measure of income inequality is the Gino Coefficient. Figure 2 provides a broader picture and presents a similar pattern.⁴

Figure 2.

Gino Coefficient 1961-2015/16.

It is of course arguable that the paradoxical outcome is the result of the individual rights not being strong enough. However, it is also arguable that equality law has been an instrument of economic inequality, wielded by Friedman’s ‘ideologues’ (beginning most notably with the Reagan and Thatcher eras). It does this by increasing the labour pool making it easier for employers to expand and contribute to economic growth. This can balance the bargaining power away from workers, and thus diminish wage demands. This in turn can control inflation (crudely put, demand for goods and services outstripping supply). Before considering the role of equality law, it is helpful to understand the background of this relationship between unemployment and inflation.

3. Friedman, unemployment, and inflation

For Milton Friedman, ‘Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output’ [6]. This perhaps simplistic analysis formed the basis of Friedman’s theories on the relationship between inflation and unemployment.

Unemployment has a ‘natural’ rate, and is worsened by Labour and social rights.⁵ This ‘natural’ rate was something that no government’s monetary or fiscal policy could sustainably reduce. Unemployment ‘can be kept below the “natural” rate only by accelerating inflation’ ([9], p. 10). If monetary authorities tried to reduce unemployment below ‘3 per cent as the target rate’, but ‘the “natural” rate is higher than 3 per cent they will trigger inflation’.⁶ We ‘cannot know what the “natural” rate is’, ([9], p. 11) continued Friedman. But ‘legal minimum wage rates’, pro-labour public procurement, and ‘the strength of labour unions’, made ‘the natural rate of unemployment higher than it would otherwise be’ ([9], p. 9). Another observation aligning with this theory was proposed by Adam Smith. On the assumption that fuller employment raised worker bargaining power and conversely higher unemployment reduced worker power, he observed that when bargaining power is less unequal, wages increase.⁷

Friedman argued all inflation (not just wage rises) accelerates with full employment. This justified using monetary policy only to concentrate on price stability (apparently unconnected to full employment) and to undo all labour rights.⁸ It would seem that the unemployed pay a heavy price to control inflation for the benefit of all, although it is likely that the greater benefit, or even the whole benefit, accrues to the majority. In recognition of this, Friedman suggested that the unemployed should share in the wealth created with his negative income tax scheme,⁹ which is a version of the now-touted ‘Basic Income’ for all.

This binary theory of inflation and unemployment formed the basis of the economic policy of the Thatcher and subsequent Major governments (1979–1997). For reasons that will become clear, this was rarely expressed. Only in the later years did the less populist John Major betray this. In his first speech as Chancellor of the Exchequer, in 1979, he said ‘So inflation must go. Ending it cannot be painless. The harsh truth is that if the policy isn’t hurting, it isn’t working’.¹⁰ Subsequently, his successor, the Chancellor under his Premiership, Norman Lamont, in 1991, told Parliament, ‘Rising unemployment and the recession have been the price that we have had to pay to get inflation down. That price is well worth paying’.¹¹

4. The cynical ideologues

The argument that individual employment rights, and in particular equality rights, can be used to create inequality, may appear overly cynical. But a revisit to the accompanying policies of the Thatcher government in particular reveals that this is, in fact, quite realistic. What we see with both the Thatcher and Major approaches is the implementation of just one-half of Friedman’s theory, with the participation of the unemployed forgotten. At least John Major had the honesty to express the connection between its inflation and monetary policies and unemployment. Previously, the Thatcher government denied any connection. For example, in 1985, it stated ‘Low demand not the cause of unemployment’. Instead, it was ‘the failure of our jobs market, the weak link in our economy’ [15].

But it was worse than a mere denial. Whilst overseeing this monetary policy in order to control inflation with unemployment, the Thatcher administration actively blamed unemployment on the unemployed. The most vivid expression of this chutzpah was launched by the Employment Secretary, Norman Tebbit, who told the public from the 1983 Conservative Party Conference that the unemployed should, like his father, get on their bikes and look for work.¹² (This propaganda continued with the austerity measures taken in the wake of the 2008 financial crisis, with the Conservatives (again), who led the 2010–2015 Coalition Government, talking of ‘shirkers not workers’ when cutting public spending, including unemployment benefits.¹³)

In the meantime, the Thatcher Government continually cut unemployment benefits, as demonstrated in Figure 3. Whilst the short-term Earnings-Related Supplement was abolished, the general link between unemployment benefit and wages generally was cut and replaced with a link with prices. This, of course, further distanced the unemployed from general society, and in particular excluding them, and Friedman’s negative income tax scheme, from the economic policy.

Figure 3.

Unemployment benefit: Rate as a percentage of mean average earnings.

It was no surprise then, that during this period, rather than recognising the difficulties faced by the unemployed with support, the Thatcher Government made it much more difficult to claim unemployment benefits, with a number of changes to the process, as illustrated in Table 1.¹⁴

Year	Reform
1910	February Labour exchange network founded by Winston Churchill
1912	Unemployment benefit introduced and administered by labour exchanges
1919	All claimants had to prove ‘normally in employment, genuinely seeking employment and unable to obtain it’
1946	National Insurance Act
1961	Visit Job Centre once a week (twice a week before)
1974	Benefit Office and Job Centre Split
[1979 Conservative government elected]
1979	13% cut in Employment Service Staff
1980	Visit Job Centre only once every two weeks
1982	Visiting Job centre voluntary.; Abolition of Earnings Related Supplement
1982–1985	50 per cent cut back in numbers of staff to enforce work search (fall of 940 to 550 in Unemployment Registration Office)
1986	Restart mandatory job-related interview; increases in staff (especially for checking fraud); vacancies displayed in benefit office; verification letters sent to unemployed; maximum period of benefit disqualification extended to 13 weeks (was 6 weeks 1913–1986)
January –	Pilots; July-nationwide for those with 1 year + unemployment
October	Extended to all with 6 months unemployment
1988	Maximum period of benefit disqualification extended to 26 weeks
1989	Social Security Act. Eligibility requirements increased over ‘actively seeking work’ (must look every week); cannot refuse ‘unsuitable’ jobs paying less than going rate
1990	Employment Service given more independence by being made into an ‘arms length agency’; performance targets (e.g. on referrals).
1991	Mandatory one week job course for unemployed >2 years
1994/5	‘Stricter benefit regime’ doubles number of sanctions/referrals
1996	JSA (Job Seekers’ Allowance’) – new legal framework based around Job Seekers Agreement: Visit Job Centre once every two weeks; more random checking over search; after 3 months unemployment have to search for other occupations
[1997 Labour government elected]
1997	Various compulsory programmes (1–2-1, Workwise, Project Work)
1998	New Deal for Young People (pilots in January, nation roll out in April)
1998	New Deal for Long-Term unemployed – all those unemployed for over 2 years (July)
1999	April National Minimum Wage introduced at £3.60 for adults and at £3 for youths
1999	August New Deal for over 50s piloted
2000	New Deal for over 50s national roll out
2001	New Deal made a permanent feature of UK unemployment benefit regime

Table 1.

Timeline of UK unemployment benefit reforms.

This rather brutalist policy is revealed from a different perspective, when compared to European neighbours, as Figure 4 illustrates.¹⁵

Figure 4.

‘Net disposable income after housing costs for a single unemployed person without children, previously employed on average wage, reliant on unemployment insurance, 2012.’

In summary, in 1979–1997 Conservative Administrations extracted a binary theory from Friedman’s thinking and implemented it brutally. Rather than recognising the role of the unemployed in the policy, they went to the other extreme of blaming unemployment on the unemployed. Instead of sharing the benefits of the policy with the unemployed, benefits were cut and became increasingly more difficult to claim, and all with brutal demonising language.

5. The rise of the individual and decline of the collective

Aligned with this creation of, an attack upon, the unemployed, the Thatcher government presided over the decline in collective labour rights, in particular with the number of reforms to trade union law and rights.

The highlights comprised a removal of the blanket immunity from liability for industrial action (the closest thing to a ‘right to strike’, expressed in the negative)¹⁶; ballots for industrial action and election of officials¹⁷; liability extended for unofficial strikes and an extended right to dismiss strikers¹⁸; seven days’ notice of strike action¹⁹; restrictions on secondary industrial action²⁰; extension of individual member rights against union²¹; turnout requirements in ballots for strike action (50 per cent, and 40 per cent in important public services)²²; restrictions on collection of political funds from the membership (with the potential to weaken a union’s political lobbying power).²³

Whatever the merits of each particular reform, the result is to reduce the collective power provided by trade union. Notably here, some powers being returned to individual members. These augmented the inherent weakening of trade union power by unemployment and the consequent reduction in membership. Nevertheless, as Adam Smith observed, if there is low unemployment and the consequent labour shortage, the workers’ hand is strengthened. Conversely, high unemployment strengthens the employer’s hand. This was illustrated vividly during the steep decline of the shipbuilding industry during the 1980s. In Litster v Forth Dry Dock & Engineering,²⁴a new company, Forth Estuary Engineering (FEE) was established to take over the failing Forth Dry Dock & Engineering Company (FDD), who was in receivership. FEE wanted to take on another workforce, recently redundant. The advantage was that, given the increasingly large pool of unemployed shipbuilding workers, and consequent reduced bargaining power, they would come at cheaper rates. Just one hour before the transfer, FDD sacked its whole workforce. Although this manoeuvre ultimately was found to be unlawful, the facts demonstrate the market power provided by high unemployment.

6. What has this to do with equality law?

Equality law has the effect of increasing the labour pool, making it easier for employers to expand and contribute to economic growth,²⁵ a value seemingly unquestioned in public debate, saving some ecological thinking. Sex discrimination law, for instance, in targeting 50 per cent of the population, hugely increases the labour pool, first, by encouraging women to enter the labour market, second, in addressing the obvious problem with the first, it provides maternity rights so that women may work and bear children, saving the labour market from generational shrinkage. The latter—notably—produces a backlash from right-wing populists, insisting that child-bearing is an individual choice, and so the costs of which should be borne by that individual. Disability discrimination policies have brought persons from institutional, and recently, marginalised existences into the workplace, again broadening the labour pool. Those deterred from participating fully in the job market because of sexual orientation, religion or belief, or age, were similarly protected (although less so for compulsory retirement because of age).²⁶

It must be emphasised that discrimination law itself is not the problem, but the misused instrument. Friedman’s labour pool depended upon a ‘natural rate of unemployment’, without which there could be no economic growth. In pockets, or even whole nations, of full employment, for instance, there will be problems attracting investors, who would have to compete with existing employers for already-employed labour; investment and consequent growth is attracted to unemployment. In some regions of Germany that experience a situation of almost full employment, attracting Foreign Direct Investment (FDI) became difficult because incoming investors end up competing with existing companies over already employed labour.²⁷

Growth not only depends on a widening labour pool but also demands a mobile one. Here, race and nationality discrimination laws can play a role. These facilitate free movement of workers between regions and (notably within the EU) between states. Whilst they quite rightly raise a nation’s conscience over the evils of racism, they facilitate immigration, enabling the demonisation of those who object to it on economic grounds, such as depressing the market’s wage demands. This again fuels populism, indeed, paradoxically, the rise of fascism. This no doubt played a critical part of getting the Brexit vote ‘over the line’, as those committed Brexiters for constitutional reasons did not form a big enough voting block to win the referendum. In more extreme cases, this can fuel fascism, as demonstrated with the increased vote for the extreme neo-Nazi ‘Sweden Democrats’.²⁸

One might consider that the courts would offer some resistance, at least to instances of egregious economic inequality, given their avowed principle of morality²⁹as well as the occasional mention of equality is a principle of the common law.³⁰ However, there is no evidence of the courts actually implementing such principle in actual cases of inequality. Perhaps the best (worst!) example arose in the case predating equality legislation, actually demonstrating hostility to the notion of equality generally. When economic hardship for women was raised as an issue for judicial review, it was rejected with scorn. In Roberts v Hopwood,³¹ Poplar Borough Council embarked upon an equal pay policy for its lowest paid workers. The policy was struck down by the House of Lords on the ground that the Council had been misguided ‘by some eccentric principles of socialistic philanthropy, or by a feminist ambition to secure the equality of the sexes in the matter of wages in the world of labour’.³²

The introduction of discrimination legislation paradoxically reinforced this attitude, allowing the common law, apparently in deference to Parliament, to wash its hands of discrimination issues whenever the facts fell outside of an activity prescribed by the legislation. This is in stark contrast to its usual approach to matters of ‘morality’, where it readily would venture where even dedicated statutes would not tread.³³

A similar picture is apparent in the United States. Famously, the Supreme Court, in Brown v Board of Education,³⁴ held that the ‘separate but equal’ racially segregated education system operated in some States was constitutionally ‘unequal’ under the equal protection clause of the 14th Amendment. However, a similar challenge regarding wealth inequality in education was rejected. In San Antonio v Rodriguez,³⁵ the Court refused to extend its reasoning from Brown, where school funds were allotted according to the tax raised in each respective district, thus affording, generally, the poorest children receiving an inferior education.

On both sides of the Atlantic, the law seems extremely cautious as to the merits of using equality law to address economic inequality. This suggests that economic inequality should be addressed by policy, not necessarily individual discrimination law. One attempt was made with the opening section of the Equality Act 2010, somewhat heralding its introduction. Section 1 provided a duty on public authorities to consider socio-economic inequality in all its decisions. However, the provision has never been brought into force. It now languishes as a forgotten principle of equality.

There are of course more direct policy drivers to address economic inequality. There are two fairly obvious paths to take. The first is the more recently touted ‘universal basic income’, where everyone of working age is provided with an income by the state. Those in work do not lose this income, but simply ‘top it up’ with their wages. This is criticised as providing a disincentive for anyone to go into work.³⁶ However, this disregards all the other benefits and incentives to go into work, such as social standing, interest, self-development, and so on and so forth. Moreover, as noted above, the significantly higher unemployment benefit in comparable European countries does not seem to disincentivise work in those nations.

An alternative, but much less touted, approach, would be to simply reduce the working week in correspondence to a reduced demand for work. Instead of the current model of ‘permanent work hours—flexible unemployment’, there would be ‘flexible work hours—permanent employment’. Rather than a binary system of demand dictating whether people are either in work or out of work, demand dictates how many hours are required to meet the demand. A hint of this was demonstrated in the financial crisis 2008, where some businesses and workers negotiated a reduction in hours (and pay). This of course benefited the workers generally, some of whom would otherwise be unemployed, and/or all of whom were at risk if the business folded. The trade-off for a cut in pay was job security. The business benefited from survival via a lower wage bill, and retention of its workforce skills, which might otherwise cost to replace at some future time of recovery.

7. Conclusion

This tour around the industrial relations during high unemployment under the Thatcher and Major Administrations in particular, provides some insight into the underlying cause of the increasing economic inequality in the UK. It involves diminished collective (trade union) rights, increased individual employment rights, a crude use of unemployment as a weapon to control inflation, and the demonisation of the unemployed combined with diminution in unemployment benefits. Nestled within this is the increase in individual equality rights regarding certain protected characteristics, none of which are expressed as economic characteristics. These have the potential to broaden the labour pool, a euphemism for increasing the proportion of those unemployed. This weakens workers’ bargaining power, and thus contributes, at some degree at least, to economic inequality. The cynicism shown, notably by the Thatcher Government illustrates the potential for equality law to be misused deliberately to increase unemployment for other goals, such as controlling inflation and boosting economic growth.

The mere existence of individual equality laws and a non-interventionist judiciary facilitate economic inequality. In turn, this remains exploitable by cynical government, which as we have seen, is a realistic possibility.

For discrimination law to be assessed as an authentic instrument of social and economic justice, its alternative properties and uses should at the least be made transparent, enabling a better-informed debate over the merits of discrimination law, the current economic mindset, and individual rights more generally. If economic justice is taken as a principal value, alternative policies are required. A good start would be the bring into force of Section 1 of the Equality Act 2010. But much more is required, especially in relation to employment and distribution of wealth, such as the flexible employment or universal basic income (perhaps negative income tax tax) policies. Otherwise, more of Friedman’s ideologues can continue to misuse his economic theories and direct us to economic inequality of feudal proportions.