Full employment: Don’t give it up without a fight

An oldie but ultra goodie.  Must read.---rng

from Economic Policy Institute

REPORT | Jobs, Wages, and Living Standards

By Dean Baker and Jared Bernstein | January 2, 2002

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Introduction

As the unemployment rate began to tick up in recent months, comments like these began appearing in the press:

“…the economy is moving to a more normal, sustainable unemployment rate after a period of rapid growth.” -Neal Soss, chief economist at Credit Suisse First Boston, quoted in the Washington Post, May 5, 2001

“Unemployment, despite thousands of recent layoffs across a wide range of sectors, is still well below the rate commonly associated with stable inflation and growth.” -New York Times editorial, June 28, 2001

Important policy-making institutions echo these sentiments. According to the Congressional Budget Office (CBO) – the scorekeeper for budget battles for more than two decades – the recent rise in unemployment is simply a return to normal. It views the sustainable unemployment rate as being 5.2%, more than a full percentage point above the 3.9% low hit last year. The influential Organization for Economic Cooperation and Development takes a similar position.

These may sound like the measured, reasonable views of cautious analysts, but, as we see it, they are misguided positions with worrisome consequences. The cost of taking these ideas seriously is high, and it is a cost that falls disproportionately on the working class. In fact, in terms of living standards, working families have no better ally in today’s economy than full employment, and maintaining it should be our foremost goal.

Those who advocate settling for unemployment rates above the low and sustainable rates achieved toward the end of the last recovery are wolves in sheep’s clothing, engaged, perhaps unknowingly, in a subtle breed of class warfare. If, when the economy picks up steam again, we settle into unemployment rates that prevailed over the 1980s and early 1990s, we will be consigning middle- and low-income working families to the raft of economic problems that beset them over these years: stagnant incomes, falling wages, and growing inequality.

What is full employment?For our purposes, full employment means that virtually everyone who wants a job has one. It doesn’t mean that there are no unsuccessful job seekers, i.e., that the unemployment rate is zero. It allows for frictional unemployment – the notion that a small share of the workforce is seeking jobs and will soon find them. Aside from that, at full employment the number of workers seeking jobs matches up neatly with the needs of employers; the supply of and demand for labor are in equilibrium, and the labor force is fully utilized.

Unfortunately, some groups of disadvantaged persons in the country have very high “structural” unemployment rates, meaning that their unemployment rates are consistently many times that of the overall rate. Yet, as we will show, these are the very persons helped the most by full employment.

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