What’s So Funny ‘Bout Peace, Love and Full Employment?, LTHS Edition

Jared Bernstein has a must-read post on the benefits of Full Employment for wage growth titled slack attack:

When growth and income became delinked, we spent over 100 points above the line, signaling weak job markets, high unemployment, jobless recoveries, and therefore much diminished bargaining power for middle- and lower-income workers….the moral of the story, as the latter 1990s showed (that NY minute I referred to above), in today’s global, low-union world, the working man and woman really have no better friend than full employment. It’s one of the only and best ways I know to relink growth and middle-class prosperity. And we’re currently nowhere near it.

And it’s not just middle-class and median workers who benefit from Full Employment. I’m reading EPI’s book The Benefits of Full Employment by Jared Bernstein and Dean Baker (yup, those guys), and I hope they don’t mind me quoting and borrowing some graphs from it. Bernstein/Baker:

Who filled these new jobs? A likely scenario is that those who stand at the back of the jobs queue when unemployment is too high would be precisely those to benefit most when unemployment falls. For the most part, this is exactly what happened.

The best way to examine this aspect of full employment’s benefits is to track the employment rates of various groups. This ratio of employment to population is a useful indicator of which groups within a population find jobs. The measure is limited in that it does not reveal how much someone is working—someone who enters the labor market as a part-time worker registers the same as a full time worker. But employment rates trends provide a good first picture as to which groups increased their likelihood of working in the paid labor market.

Increases for the other groups clearly accelerate in the full employment period, in some cases dramatically. For young (16-25, excluding those in school) African American women with less than a high school degree, a particularly disadvantaged group, the increase in the latter period was an unprecedented 10 percentage points, seven times that of the overall increase. Hispanic females experienced only a slightly smaller increase; in their case, however, the move toward full employment in the latter 1990s actually reversed a small decline in their employment rates from 1992 to 1996….

Full employment is integral to a future in which real wages rise for all working families, not just for the wealthy. The evidence suggests that if the Fed keeps interests rates low and if productivity growth holds in the 2% range (a growth rate most productivity analyst think will prevail going forward), wage growth for low wage workers should continue to beat inflation, though not perhaps by as much as it did at the end of the boom. Continued increases in the minimum wage will also help. But if productivity sinks back to growth rates in the 1-1.5% range, and if “full employment” once again translates into rates in the 5-6% range, the prospects for strong real wage growth in the bottom half of the wage scale are dim.

Great stuff, check out the whole book.  Full employment boosts wages of men at the 30th percentile and employment for those with less than a high school diploma (LTHS).  Nothing in the neoliberal toolkit of supply-side policy fixes is capable of increasing the wages or employment prospects of either of these struggling groups, but demand-side policy is capable of doing something.

When monetary policy is working, when we are hitting targets and full employment is humming along, a lot of other policy problems become a lot easier to deal with.  For those who wanted to do welfare reform in the 1990s, it was made easier by the fact that full employment created the conditions for the labor market to take in more workers (the book goes at length to explain that Figure 3C above isn’t just welfare reform).  With unemployment sky-high, as it is now, poverty at the lower-end of the distribution is spinning out of control and policy responses are that much harder to create.

There’s a huge battle within the liberal coalition about what we want K-12 education to be able to do for disadvantaged groups.  Without taking any position on those battles, one reason the stakes are so high is that wages are weak and declining for those with just a high school degree and far worse for those that don’t get out of high school.  Though full employment doesn’t make these debates go away, it does help by boosting the wages for those down the income distribution.  If it is easier to live a fuller, freer life with just a high school diploma, other battles can take a bit of a breather.

That’s not even getting into the deficit hawks who aren’t realizing that when people work they pay taxes, so getting people working helps with the deficits.  Which is to say an active policy of full employment makes all other problems for people who aren’t managers or rentiers that much easier to deal with.

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3 Responses to What’s So Funny ‘Bout Peace, Love and Full Employment?, LTHS Edition

  1. Given outcomes, permanently high DISemployment should be seen for what it is: The preferred policy of both legacy parties. And surely “liberal coalition” assumes facts not in evidence?

  2. engineer27 says:

    More evidence discussed by Katherine Newman in her book. Hear her talk about it on EconTalk>/a>.

  3. Misaki says:

    “Nothing in the neoliberal toolkit of supply-side policy fixes is capable of increasing the wages or employment prospects of either of these struggling groups, but demand-side policy is capable of doing something.”

    There is a third option: change the way income, and thus full-time work, is seen as a measure of individual economic success.

    “That’s not even getting into the deficit hawks who aren’t realizing that when people work they pay taxes, so getting people working helps with the deficits.”

    Not so much that, as when there are more jobs available there are fewer excuses for the government to inject money into the economy through direct employment and social welfare. And as Krugman pointed out the primary objective of the GOP is “the dissolution of the welfare state”.

    (from next post)
    “The unemployed (and this graph doesn’t count those who have dropped out of the labor force, or are underemployed) have to be willing to jump through a lot of hoops to secure work…”

    Just another reason to fix unemployment! As long as society is willing to abandon the traditional view of GDP as the primary measure of economic growth: http://pastebin.com/Q86Zhgs9

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