An unemployed man walks through a street in Accrington, Lancashire. Photograph: Getty Images
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Decoding the unemployment figures exposes the truth behind the coalition’s spin

It is clear that the coalition is bad for jobs.

In August 2009 George Osborne said it would be “humiliating” if Britain’s AAA credit rating was downgraded and later that it was “absolutely essential we don’t have the downgrade that hangs over the country at the moment”. In the Commons in 2011, our part-time chancellor gloated that “our credit rating had been put on negative watch. Now, however, thanks to the policies of this coalition government, Britain has economic stability again.” Presumably the inference is that, after the Moody’s downgrading of the UK’s AAA rating on 22 February, we now have economic instability. Osborne suggested that maintaining the AAA rating was the number-one benchmark by which he should be judged, so we need to keep him to his word. It isn’t as if he wasn’t warned. And we seem to be heading for a sterling crisis, as there is growing pressure on the pound.

The only bit of apparently good news for the government came from the labour market. On 20 February, the Office for National Statistics reported that in the past quarter UK unemployment had fallen by 14,000 and employment had reached a “record” level of 29.7 million. Many took this as a vindication of the government’s economic strategy but it wasn’t. Youth unemployment was up by 11,000 and real wages fell once again. Also, the working-age population has risen, so the employment rate, calculated as a proportion of the working-age population, was below its old level spanning the entire period from 1997 through to the start of 2008.

The government’s claim that it has created a million private-sector jobs is false. Over the past two years public-sector employment has fallen 521,000 while private-sector employment has increased by just over one million, a net increase of about half a million jobs. But of the one million “new” private-sector jobs the coalition claims were “created”, a fifth were obtained by cheating, because lecturers in further education and sixth-form colleges were reclassified from the public to the private sector last spring. Fiddling the data isn’t the same as creating private-sector jobs.

It turns out that the news on the labour market isn’t very good. In fact, the unemployment rate no longer captures the full picture of spare capacity in the market, as many workers are employed but say they would like to work more hours and well over a million part-timers want to go full-time. These workers are “hours-constrained”. In part, this is related to real wages not growing, and many firms have reduced overtime and extra shift payments. The jobless rate takes no account of this “underutilisation” of the workforce.

Together with David Bell, professor of economics at the University of Stirling, I have devised a new “underemployment index”. It is based on the idea that the best possible outcome for the labour market would be one in which every worker is able to work the number of hours he or she wants. There is a host of reasons why this nirvana will not be realised, but it is a useful concept, in the sense that deviations from it could occur because some workers are unemployed, or because some workers already in a job are offered fewer hours than they would like, or both. The size of the deviation measures the real level of excess capacity in the UK labour market.

We use data on individuals from the Lab - our Force Survey that is released to researchers, and is used to calculate the number of unemployed. We then calculate the number of hours unemployed people would work if they had a job, assuming they work the number of hours that we calculate are consistent with their characteristics. We add these to the extra hours existing workers say they would like to work and we subtract the hours of those who wish to cut their hours. Finally, we calculate a rate that measures the proportion by which actual hours fall short of desired hours. The graph (below) shows both our index and the published unemployment rate for the period 2001-2012.

There are two clear messages from our index. First, underemployment consistently adds to the measured excess labour capacity in the UK labour market. Even though unemployment rates were low between 2001 and 2007, our index exceeded the unemployment rate by 36 per cent on average between 2001 and 2007 and by 38.7 per cent between 2008 and the second quarter of 2010. Those wanting to work more hours consistently exceed those who want to work fewer hours in the UK labour market.

Second, since the start of the recession, underemployment has been contributing an increasing share of overall excess labour capacity in the UK. Unemployment may not have increased much recently, but there has been a substantial rise in the number of extra hours that those already employed would like to work. Our index exceeded the unemployment rate by 42.4 per cent between the second quarter of 2010 and the third quarter of 2012, down from 44.9 per cent in the second quarter of 2012. In the last two quarters for which we have data, our measure of excess capacity is higher – at 43.8 per cent under this coalition – than it has been since our series started in 2001 or the recession began in 2008.

It might seem better to have some work rather than none and, therefore, there might be a tendency to discount short-time working as not much of a problem. But our latest research also suggests that this group is almost as unhappy as the unemployed. Furthermore, when (and if) the upturn comes, reductions in unemployment will be delayed, as it is likely that those already employed will be offered extra hours before new workers are hired.

It is clear that the coalition is bad for jobs.

David Blanchflower is economics editor of the New Statesman. This column is written jointly with David Bell

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

This article first appeared in the 04 March 2013 issue of the New Statesman, The fall of Pistorius

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The secret anti-capitalist history of McDonald’s

As a new film focuses on the real founder of McDonald’s, his grandson reveals the unlikely story behind his family’s long-lost restaurant.

One afternoon in about the year 1988, an 11-year-old boy was eating at McDonald’s with his family in the city of Manchester, New Hampshire. During the meal, he noticed a plaque on the wall bearing a man’s face and declaring him the founder of McDonald’s. These plaques were prevalent in McDonald’s restaurants across the US at the time. The face – gleaming with pride – belonged to Ray Kroc, a businessman and former travelling salesman long hailed as the creator of the fast food franchise.

Flickr/Phillip Pessar

But this wasn’t the man the young boy munching on fries expected to see. That man was in the restaurant alongside him. “I looked at my grandfather and said, ‘But I thought you were the founder?’” he recalls. “And that’s when, in the late Eighties, early Nineties, my grandfather went back on the [McDonald’s] Corporation to set the history straight.”

Jason McDonald French, now a 40-year-old registered nurse with four children, is the grandson of Dick McDonald – the real founder of McDonald’s. When he turned to his grandfather as a confused child all those years ago, he spurred him on to correct decades of misinformation about the mysterious McDonald’s history. A story now being brought to mainstream attention by a new film, The Founder.


Jason McDonald French

“They [McDonald’s Corporation] seemed to forget where the name actually did come from,” says McDonald French, speaking on the phone from his home just outside Springfield, Massachusetts.

His grandfather Dick was one half of the McDonald brothers, an entrepreneurial duo of restaurateurs who started out with a standard drive-in hotdog stand in California, 1937.

Dick's father, an Irish immigrant, worked in a shoe factory in New Hampshire. He and his brother made their success from scratch. They founded a unique burger restaurant in San Bernardino, around 50 miles east of where they had been flogging hotdogs. It would become the first McDonald’s restaurant.

Most takeout restaurants back then were drive-ins, where you would park, order food from your car, and wait for a “carhop” server to bring you your meal on a plate, with cutlery. The McDonald brothers noticed that this was a slow, disorganised process with pointless costly overheads.

So they invented fast food.

***

In 1948, they built what came to be known as the “speedy system” for a fast food kitchen from scratch. Dick was the inventor out of the two brothers - as well as the bespoke kitchen design, he came up with both the iconic giant yellow “M” and its nickname, the “Golden Arches”.

“My grandfather was an innovator, a man ahead of his time,” McDonald French tells me. “For someone who was [only] high school-educated to come up with the ideas and have the foresight to see where the food service business was going, is pretty remarkable.”


The McDonald brothers with a milkshake machine.

McDonald French is still amazed at his grandfather’s contraptions. “He was inventing machines to do this automated system, just off-the-cuff,” he recalls. “They were using heat lamps to keep food warm beforehand, before anyone had ever thought of such a thing. They customised their grills to whip the grease away to cook the burgers more efficiently. It was six-feet-long, which was just unheard of.”

Dick even custom-made ketchup and mustard dispensers – like metal fireplace bellows – to speed up the process of garnishing each burger. The brothers’ system, which also cut out waiting staff and the cost of buying and washing crockery and cutlery, brought customers hamburgers from grill to counter in 30 seconds.


The McDonald brothers as depicted in The Founder. Photo: The Founder

McDonald French recounts a story of the McDonald brothers working late into the night, drafting and redrafting a blueprint for the perfect speedy kitchen in chalk on their tennis court for hours. By 3am, when they finally had it all mapped out, they went to bed – deciding to put it all to paper the next day. The dry, desert climate of San Bernardino meant it hadn’t rained in months.

 “And, of course, it rained that night in San Bernardino – washed it all away. And they had to redo it all over again,” chuckles McDonald French.

In another hiccup when starting out, a swarm of flies attracted by the light descended on an evening event they put on to drum up interest in their restaurant, driving customers away.


An original McDonald's restaurant, as depicted in The Founder. Photo: The Founder

***

These turned out to be the least of their setbacks. As depicted in painful detail in John Lee Hancock’s film, Ray Kroc – then a milkshake machine salesman – took interest in their restaurant after they purchased six of his “multi-mixers”. It was then that the three men drew up a fateful contract. This signed Kroc as the franchising agent for McDonald’s, who was tasked with rolling out other McDonald’s restaurants (the McDonalds already had a handful of restaurants in their franchise). 

Kroc soon became frustrated at having little influence. He was bound by the McDonalds’ inflexibility and stubborn standards (they wouldn’t allow him to cut costs by purchasing powdered milkshake, for example). The film also suggests he was fed up with the lack of money he was making from the deal. In the end, he wriggled his way around the contract by setting up the property company “McDonald’s Corporation” and buying up the land on which the franchises were built.


Ray Kroc, as depicted in The Founder. Photo: The Founder

Kroc ended up buying McDonald’s in 1961, for $2.7m. He gave the brothers $1m each and agreeing to an annual royalty of half a per cent, which the McDonald family says they never received.

“My father told us about the handshake deal [for a stake in the company] and how Kroc had gone back on his word. That was very upsetting to my grandfather, and he never publicly spoke about it,” McDonald French says. “It’s probably billions of dollars. But if my grandfather was never upset about it enough to go after the Corporation, why would we?”

They lost the rights to their own name, and had to rebrand their original restaurant “The Big M”. It was soon put out of business by a McDonald’s that sprang up close by.


An original McDonald restaurant in Arizona. Photo: Flickr/George

Soon after that meal when the 11-year-old Jason saw Kroc smiling down from the plaque for the first time, he learned the true story of what had happened to his grandfather. “It’s upsetting to hear that your family member was kind of duped,” he says. “But my grandfather always had a great respect for the McDonald’s Corporation as a whole. He never badmouthed the Corporation publicly, because he just wasn’t that type of man.”

Today, McDonalds' corporate website acknowledges the McDonalds brothers as the founders of the original restaurant, and credits Kroc with expanding the franchise. The McDonald’s Corporation was not involved with the making of The Founder, which outlines this story. I have contacted it for a response to this story, but it does not wish to comment.

***

Dick McDonald’s principles jar with the modern connotations of McDonald’s – now a garish symbol of global capitalism. The film shows Dick’s attention to the quality of the food, and commitment to ethics. In one scene, he refuses a lucrative deal to advertise Coca Cola in stores. “It’s a concept that goes beyond our core beliefs,” he rants. “It’s distasteful . . . crass commercialism.”

Kroc, enraged, curses going into business with “a beatnik”.


Photo: The Founder

Dick’s grandson agrees that McDonald’s has strayed from his family’s values. He talks of his grandfather’s generosity and desire to share his wealth – the McDonald brothers gave their restaurant to its employees, and when Dick returned to New Hampshire after the sale, he used some of the money to buy new Cadillacs with air conditioning for his old friends back home.

“[McDonald’s] is definitely a symbol of capitalism, and it definitely sometimes has a negative connotation in society,” McDonald French says. “If it was still under what my grandfather had started, I imagine it would be more like In'N'Out Burger [a fast food chain in the US known for its ethical standards] is now, where they pay their employees very well, where they stick to the simple menu and the quality.”

He adds: “I don’t think it would’ve ever blossomed into this, doing salads and everything else. It would’ve stayed simple, had quality products that were great all the time.

“I believe that he [my grandfather] wasn’t too unhappy that he wasn’t involved with it anymore.”


The McDonald’s Museum, Ray Kroc’s first franchised restaurant in the chain. Photo: Wikimedia Commons

Despite his history, Dick still took his children and grandchildren to eat at McDonald’s together – “all the time” – as does Jason McDonald French with his own children now. He’s a cheeseburger enthusiast, while his seven-year-old youngest child loves the chicken nuggets. But there was always a supersize elephant in the room.

“My grandfather never really spoke of Ray Kroc,” he says. “That was always kind of a touchy subject. It wasn’t until years later that my father told us about how Kroc was not a very nice man. And it was the only one time I ever remember my grandfather talking about Kroc, when he said: ‘Boy, that guy really got me.’”

The Founder is in UK cinemas from today.

Anoosh Chakelian is senior writer at the New Statesman.