Full employment: George Osborne's audacious bid to steal Labour's biggest economic buzzphrase of the 20th Century

George Osborne has today committed to “fight for Full Employment in Britain”. But what does “full employment” actually mean?

The answer, as with so much else in the world of politics and economics, depends on who you ask.

According to those who drafted post-war jobs legislation in the 1940s, it meant “the maintenance of a high and stable level of employment”. To economists these days it means the lowest level unemployment can get to before it starts pushing up inflation (though they prefer to call it NAIRU, the non-accelerating inflation rate of unemployment, which tells you just about everything you need to know about economists). Today the NAIRU is thought to be somewhere between 5% and 6%, though opinions differ.

To George Osborne, on the other hand, it means something very specific: attaining the highest employment rate among the Group of Seven leading developed economies.

That the Chancellor is able to apply an entirely new definition to something that sounds so specific is a cursory reminder: “full employment” has never quite meant what it sounds like. It has never meant eliminating unemployment, for one thing. Even John Maynard Keynes, one of the forefathers of the policy (in its post-war embodiment) never believed one could entirely wipe out unemployment, since even in a Utopian society people would still have time between jobs (“frictional unemployment”, he called it).

For what it’s worth, the Chancellor’s pledge is quite ambitious – though not extraordinarily so. Britain’s employment rate is 71.1%, which is fourth in the G7. If one uses alternative statistics the UK is actually joint-second, but either way, getting the rate up above Germany’s 73.5% might be difficult, if not impossible.

Whether it makes economic sense for the Chancellor to adopt this target (ironically at the very same time as the Bank of England ditches its own unemployment target) is moot. But, frankly, it is probably not worth dwelling on for all that long. After all, as with so many of Mr Osborne’s strategies, this move is about 90% political. And on that front, it’s a fascinating move.

For it represents an audacious attempt to steal back a totemic political brand which has belonged to the Labour party for most of the past 70 years. As the Chancellor pointed out in his speech, “full employment” was first introduced into the UK system with the 1944 White Paper on Employment. That paper, which came at more or less the same time as the foundation of the state school system and the NHS, was a key plank of the post-war economic settlement. Alongside the new welfare state, the Government would commit to ensuring everyone with the capability and the desire would get a job. Though both Labour and Conservative politicians designed the original policy, it was the Labour party, from Clement Attlee onwards, which became most closely associated with it.

And when, in the 1970s, that post-war Keynesian settlement frayed amid cripplingly high inflation rates, the Conservative party swiftly washed its hands of the “full employment” policy altogether. Though Margaret Thatcher continued to carry round her own annotated copy of the 1944 White Paper in her handbag, the Tories had broken with it, as Nigel Lawson wrote in his memoirs.

“The twofold error of previous Governments,” he wrote, “had been the commitment to full employment, come what may, and the false teaching of the neo-Keynesian economic establishment that the route to full employment was ever more monetary (and fiscal) expansion.”

In short, the “full employment” branding became toxic. Though Labour has occasionally name-checked it in the years since, and John Major briefly flirted with it as a policy, it has rarely been regarded as a vote-winner in recent years.

All of which is what makes George Osborne’s adoption of the term so intriguing. Aside from anything else, it represents a major break with the overriding Conservative economic strategy since the late 1970s. While it hardly represents the Chancellor stepping back into the arms of Keynes, it is nonetheless a step back from 1980s-style Thatcherism.

Whether it will be successful is another matter. “Full employment” has meant lots of things over the past seventy years, but the overriding (and ultimately negatively-tainted) definition was the pursuit of high employment above almost all other considerations. George Osborne’s definition is quite different – a high employment rate in comparison with other economies.

This is messaging, not policy. But you can’t deny the boldness of the political objective: to underline the remarkable falls in UK unemployment (if not productivity) in recent years and to undermine Labour, which has always assumed ownership of the phrase.