Britain’s employment problem would on the surface appear to have been solved. Officially just one in 25 Britons are now unemployed, the lowest rate since the winter of 1974-75. Younger workers look to be finding jobs more easily than ever. Older workers are staying in employment for longer. Although the economy has created over 1m jobs since 2010, real wage growth remains flat. Britain is a jobs factory but for insecure, low-paid work. More people are employed, but on static real – that is, inflation-adjusted – wages. Real wage growth averaged 2.9% in the 1970s and 1980s, 1.5% in the 1990s, 1.2% in the 2000s. It is zero today. This is not normal, yet the authorities are determined to believe it is so.

The Bank of England is in denial. Wage growth is the clearest signal as to whether monetary policy is tighter or looser than the economy can sustain. Instead of focusing on that, the Bank concentrated on the record low employment and raised interest rates this month, putting pressure on indebted households. The Bank has been criticised for “clear signs of ‘groupthink’ among its leadership”. It seems to be still suffering from it. But the Bank is not to blame. The guilty are in power. The Conservative party’s achievement has been to strip away bargaining power from employees and have them work on the terms offered by employers. The result has been widespread use of zero-hours contracts, self-employment and other forms of underemployment.

Economic insecurity is now a way of life for millions in the UK. One recent study by the RSA thinktank estimated that two in every five workers did not think “that they can maintain a decent quality of life, now and in the future, given their economic and financial circumstances”. Underemployment has seen a measurable increase in depression among those desperate to work longer. It also helps to peg back wage inflation because if employers need more labour all they need to do is ask employees who want extra hours to work longer at existing pay rates. Leading academics reckon the unemployment rate would be double that counted today – with one in 13 Britons unemployed – were underemployment taken into account.

The failure to provide for and sustain full and equitable employment has long been a feature of capitalist economies. John Maynard Keynes put mass unemployment down to the failure of the effective demand for labour, and argued that it was within the power of governments to deal with. That thinking has rekindled a debate in the US about full employment, a welcome shift to the politics of work. Leading US Democrats have argued for a form of job guarantee programme that could offer a secure job at a living wage to anyone who wants to work but cannot find employment. The public sector scheme would act as a shock absorber for the economy – expanding to take on workers when they have been shed from the private sector during a downturn, and contracting as the private sector absorbs labour from the job guarantee scheme in an upturn. Modelling suggests the scheme would pay for itself by drops in crime, better health and increased demand.

British politics needs to embrace such bigger thinking and move beyond its current sterility. In an era where collective bargaining is rare, a tight jobs market – where employers chase applicants – is the best wages policy available to low and middle earners. High levels of unemployment ruin individual lives and destroy the country’s fiscal health. To restore it requires a new institutional framework to deliver and maintain full employment. Politicians in the UK ought to set themselves the task of producing one.