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Unemployment is high when financial discounts are high. In recessions, the stock market falls and all types of investment fall, including employers' investment in job creation. The discount rate implicit in the stock market rises, and discounts for other claims on business income also rise. A higher discount implies a lower present value of the benefit of a new hire to an employer. According to the leading view of unemployment—the Diamond-Mortensen-Pissarides model—when the incentive for job creation falls, the labor market slackens and unemployment rises. Thus high discount rates imply high unemployment. (JEL E24, E32, E44, J23, J31, J63)

In response to R. A. B. Leaper's challenge in the last issue of this journal we present a report which we have just prepared for the BBC North‐East. We believe that a better understanding of the costs of high unemployment to the country is needed to inform decisions on how much we can afford to pay to tackle the problem. In the final section of the paper we show how this evidence can be of value in costing policy options.The last detailed costings of unemployment were published in 1982 for the financial year 1981/82. In February 1982 it appears that a political decision was taken not to publish the latest Treasury estimate updating their 1981 calculations. Since then numerous parliamentary questions on the subject have received very limited answers disputing the validity of the whole exercise.

The author intends to prove that economic policy in Germany after 1979 was opposed to that recommended by Kalecki in his famous 'Three ways to Full Employment' and was responsible for the surge in unemployment. Part I of the paper sketches the theoretical background of Kalecki's recommendations. Special attention is devoted to private investment, budget deficit and trade balance as factors determining (but not being determined by) private savings. A related topic is the change of the degree of capacity utilization and of labour force. Part II is devoted to an empirical investigation of Germany in 1960-96. The author comes to the conclusion that two factors were mainly responsible for the slowdown of GDP growth after 1979 first, the weak expansion of private investment, caused - at least to some degree - by the restrictive monetary policy of the Bundesbank and, second, the increase in the private propensity to save, related to an engineered shift in the distribution of income from wages to profits. The increase of the trade surplus in the 1980s and then in the 1990s could not prevent the slowing down of GDP growth and the increase of unemployment provoked by these two factors. In the USA, in contrast, the stagnation of private investment in 1980-91 was counterbalanced by a decrease of the private propensity to save and by an increase of the budget deficit. Thus a stagnation of GDP could be avoided and unemployment did not increase very much.

People in industry and government who should know better are hounded by the fear that intensified mechanisation by computer, micro‐chip and other advanced technologies will 'destroy' jobs. 'Where will the new jobs come from?', they ask mechanically. Professor Patrick Minford retorts that their fears are largely groundless because their reasoning is superficial. The long‐term outlook for employment could be bright if government helped rather than hindered fluidity in the labour market.