Another Call for Full Employment: This Time from Across the Pond

June 13th, 2013 at 5:54 pm

Gavin Kelly, writing in the Guardian, echoes the clarion call for full employment which readers around here have heard with some regularity (Gavin is the executive director of the excellent UK think tank: the Resolution Foundation).

His core argument is familiar and resonant, and generally maps well onto our own debate, though our big banks are no longer zombies.  [A better analogy in the US case (I’m thinking of the current regulatory and tax debates) is that the banks are like a dog that we found severely injured at the side of the road, took home and nursed back to health.  Then he attacked us.]

High unemployment, as well as ruining individual lives, destroys our fiscal health. High employment restores it. To recover from our current crisis and then meet the costs of an ageing society – without eviscerating support for the young and those of working age – is going to require major increases in the numbers working.

By way of contrast, those of a fatalistic mindset believe that the UK is afflicted with such intractable problems that to cast ahead to the possibility of full employment is to indulge in fantasy economics. Those drinking at the well of economic pessimism see an economy hobbled by zombie banks, debt-drenched households, fiscal austerity, and a somnolent export sector. It hardly looks poised for a jobs boom.

Getting back on the path towards full employment, even if it’s a painfully long one, will require…deft…policy choices that avoid the pitfalls of complacency and fatalism. Some of the elements are likely to involve an expansionary macro-policy tempered by measures that puncture potential asset bubbles; a revamped childcare system that makes it worthwhile for both parents to work; and tax reform that makes hiring labour more attractive and sitting on cash piles less so.

As Kelly points out, and as I stressed here, the goal of full employment was a much more conspicuous part of post-war US and the UK policy agendas than it is today.  Why is that?

Here’s what I wrote a few weeks ago:

[Full employment] was a central goal of the Democratic Party, labor unions and advocates of social and racial justice.

And it usually worked. While conservatives and businesses pushed back — tight labor markets meant more worker bargaining power, higher wages and less profitability — between 1949 and 1979 the market was at full employment over two-thirds of the time. Since then, it has been at that level just a third of the time.

How did this happen? Both the politics and economics are implicated.

Politically, as union power declined, the concerns of Democratic policy makers shifted from working-class issues like jobs and toward the concerns of upper-income constituents, like inflation, taxes and budget balancing.

Add in large and persistent trade deficits, high inequality, misallocation of too much capital to the finance sector, along with the fundamental point that high unemployment hurts the working class more than the asset class (and it’s the opposite with inflation), and you’ve got the core of an explanation as to why we don’t hear about full employment so much anymore.  (The tradeoff between unemployment and inflation is the connective tissue in that argument, though for years many economists pegged the unemployment rate consistent with stable inflation too high.)

Kelly argues that the “politics of full employment” could elevate politicians seeking an optimistic answer to austerity politics.  In the US case, which do you think sounds better?: “we can’t afford retirement security or investment in our schools!” or “we must ensure that all job seekers have the opportunity to contribute to our economic growth and their economic well-being!”

If you answered, “the second,” I agree.  But here’s the thing: it’s also the one that’s true.

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9 comments in reply to "Another Call for Full Employment: This Time from Across the Pond"

  1. Perplexed says:

    -“we must ensure that all job seekers have the opportunity to contribute to our economic growth and their economic well-being!”

    So which of our wealthy oligarchs are going to contribute to the campaigns of politicians that would pursue these goals, and what are the chances of them getting elected if none do. By framing the issue as one of “free speech,” our Supreme Court has sidestepped the more critical issue of: if money influences candidates and elections, are those elected “legitimate” officeholders in a representative democracy? Some things truly are “self evident.”

    We are not the “subjects” of the Supreme Court; they are supposed to be working for “We The People.” While there’s little doubt that SCOTUS can sidestep the issue if they so choose, “We The People” cannot simply ignore the risks this presents to our “experiment in democracy.” While SCOTUS focuses on overwhelming “proof” of “corruption” or the “image of corruption,” the power of “We The People” to self-govern continues to be usurped. When all we are “permitted” to do about it is talk, it really matters little what “we” think or say when it comes down to actually changing the situation.

    Its way passed time “We The People” woke up; its the very first step in the process, not only of “change of we can believe in,” but also of “change we can see and feel.” The dissonance is quite striking: what kind of “free market” model results in 120 million, or 40% of the people, just being “dropped out of the picture” when it comes to wealth distribution? Are economists still making claims about marginal products in the face of these kinds of statistics? Do they really want to be seen as “enablers” of the propaganda when “We The People” finally do wake up? It certainly works well in the short-run, but the “short-run” could be shorter than expected; maybe they should start thinking about getting out in front of it? Those “sleeping dogs” can pretty nasty when they do wake up.

  2. Kevin Rica says:

    Really, we have unemployment?

    But we have an immigration bill sponsored by the body-snatchers that took over what used to be the Democratic Party based on the premise that we have a labor shortage (the mutually exclusive and diametrical opposite of unemployment.) Maybe they are afraid that if we start deporting aliens we’ll go after the space alien that took over Chuck Schumer’s brain. His body used to belong to a Democrat.

    Tamar Jacoby, fellow of the progressive “New America Foundation” and president of ImmigrationWorks USA, a national federation of small business owners, wrote in yesterday’s Wall Street Journal that America has a shortage of HS dropouts (and to think the we misallocate resources keeping kids in school). She pointed out:

    “In 1950, according to the Census Bureau, 56% of U.S. workers were high-school dropouts. Today, the figure is less than 5%.

    The result is that the pool of people available to fill low-skilled jobs has shrunk dramatically.”

    (You don’t think that I could make this stuff up?)

    In fact, she goes on to explain:

    “In the early 2000s, when the economy was booming, more than 350,000 unauthorized Mexicans entered the U.S. every year to fill low-skilled jobs for which there were not enough Americans.”

    Can one imagine the chutzpah? When W raised his hand and took the oath the second time, there were 0.8% fewer people employed in the private sector than at his first inauguration! And she claims the economy was booming!

    But the sociopathic prevarications of Ms Jacoby and the progressive New America foundation (“progressive” means moving on from New Deal liberalism and shafting Archie Bunker) are explained by the business interests who fund them.

    As Adam Smith so sagely pointed out:

    “The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public..The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose
    interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

    Smith, Adam (2002-06-01). An Inquiry into the Nature and Causes of the Wealth of Nations (pp. 176-177). Public Domain Books. Kindle Edition.

    • Jared Bernstein says:

      OK–I’ll grant you that the Jacoby peice is an extremely odd bit of writing. A low-wage worker shortage?? You wouldn’t know that from looking at their wage trends over most of the past few decades. Also, how does this comport with the other message we’re always hearing about needing more high-skilled workers? So we have a shortage of both low- and high-skill workers?? And a hollowing out of middle class jobs?? I’m confused!

      But just to push back on your ‘it’s all on the supply-side’ argument, recall that in the 1990s, immigrant flows from the south were very strong–more so than since–and real low wage rose at the rate of productivity growth (1995-2000). The reason? Demand curve outpaced supply curves.

      • Kevin Rica says:

        Really, in any intro to econ course that I teach, you would get a C- maybe (if I couldn’t get you to drop first.)

        First demand does not cause supply. Excess demands cause an increase in price which causes an increase in quantity demanded.

        That said, immigrants head to tight labor markets where they are most likely to secure employment. In a bad labor market, employers are less likely to take on problematic workers (the fundamental reason that Card is a joker).

        However, in the absence of unrestrained immigration, the labor market will clear the old-fashioned way, wages go up.

        But that channel was virtually smothered by immigrants. An incredible spasm of job creation resulted in very little wage response. How much did the income of the 1% increase during the first Clinton term? How much did wages? And what about Clinton’s even more incredible second term?


        The New America Foundation has sold their honor. Why should you try to save their reputation?

        • Kevin Rica says:

          Sorry, that’s:

          “Excess demands cause an increase in price which causes an increase in quantity supplied.”

        • Jared Bernstein says:

          I’ve seen that course on the syllabus: “Half of what you need to know to understand labor econ: we will deal with supply curves only and ignore the work of (Bates medal winner) David Card and many others that disagree with our priors (i.e., they find small wage effects on domestic workers from increased immigration).”

          Again, I agree that the piece in the WSJ is nonsense, but that doesn’t prove the opposite–what kind of logic is that? You really need to factor in the findings of Card and others re a) magnitudes of immigrant flows in relation to the labor market–historically, they’ve been absorbed in ways your static/supply-curve-only model doesn’t allow, b) substitutes vs complements: the contemporary work finds that the reason immigrants don’t hurt domestic workers is because they’re more often complements than substitutes–when they are substitutes (domestic workers with low skills) then they do hurt them, c) faster growing labor supply is positive for growth, d) bringing undocumented workers who are already here “out of the shadows” does not push out the labor supply curve–they’re already here–and can only help dampen unfair competition.

          You also need to get out more–not every economist who supports reform (and the vast majority do) is a zombie. Many have actually read and absorbed the lit referenced above including EPI, which has tremendous credibility on these issues*, Ray Marshall (former Labor Sec’y who gets the stuff better than almost anyone), and the AFL-CIO!


          • Kevin Rica says:

            So Card won the Bates medal. Robert Lucas won the Nobel Prize. Both still have to justify everything that they say based on merit. Besides, you know me: I’m not very good with conformity, deference to authority, or hierarchy (which explains K-12 and my very short stint in Hebrew school).

            And by Duggin’s Law (To every PhD there is an equal and opposite PhD), I can cite Borjas and Andrew Sum. And this type of spatial analysis assumes low or zero interregional arbitrage, which I find implausible. At the least, any results are low-end.

            And while you keep citing Card (and others who just cite Card), you never defend him:


            You later promised to defend him in a subsequent post, but never made good.

            And some supposedly “progressive” “think tanks” are just not to be trusted for their objectivity. “New America” just lost ALL credibility by taking on Tamar Jacoby.

            And I don’t know that “the vast majority of economists” support reform (which is not the real issue, it is the effects of reform (and what “reform” means.) I did see one speaker at the National Economists’ Club get booed when he suggested that illegal immigrants didn’t depress wages (I did NOT lead the charge). Very unlike that group – they were really irritated and clearly regarded the argument as intellectually dishonest.

            I’ll stick with supply and demand until I have an objective reason to elaborate. Occam’s razor rules! And post facto justification of a conclusion is not a reason to add stuff. Now I know Holtz-Eakin uses dynamic scoring to justify more immigration, but he works for the CoC and also used dynamic scoring to justify the Bush Tax cuts. I’ll stick with my “static” supply and demand curves.

            And the assumption that we need more HS dropouts because they are complements to other American workers is risible. If we needed more, why can’t American HS dropouts easily find work? Where are these American workers whose incomes have jumped as a result of the influx of HS dropouts? Goldman Sachs? Almost all the income gains have gone to the 1%. Are they your American workers?

            As the physicist Richard Feynman (He won a Nobel, but not from the Riksbank):

            “In general we look for a new law by the following process. First we guess it. Then we compute the consequences of the guess to see what would be implied if this law that we guessed is right. Then we compare the result of the computation to nature, with experiment or experience; compare it directly with observation, to see if it works. If it disagrees with experiment it is wrong.”

            If illegals were complements to American workers, we would see some class of American workers (besides MDs) see a huge boost to their wage rates. Since we don’t see that, “ disagrees with experiment it is wrong.”

  3. smith says:

    There is no political will to address unemployment because it is less than 4% for college educated, so it’s maybe 2% above full employment. Meanwhile the savings of 2% lower inflation and record low interest rates caused by the unemployment saves 2% on your housing costs. Most people in this group come out way ahead, and even those left unemployed for periods of time break even under this scenario. They are 50 million, 1/3 of the work force with a high 75% employment participation rate. The other 2/3, people under 25 and/or less than a college degree don’t run things, don’t set the agenda. Chuck Schumer is left unchallenged, wields enormous power nationally while catering to New York City business interests. The safety net also placates the most unfortunate and prevents political action and real change.

    Workers in a factory, on a loading dock, in the coal mines were more inclined to strike. Workers in Walmart, not so much.

    Again, the key could be to tie unemployment to wage increases. The true depth of connection is masked by downwardly nominal wage rigidities.

    Say that again with me “Downwardly Nominal Wage Rigidities”

    (it’s why unemployment is comparatively high but wages aren’t cut, it hides the connection between unemployment and stagnating wages, ergo rising inequality)

  4. architectonic says:

    “A better analogy in the US case is that the banks are like a dog that we found severely injured at the side of the road, took home and nursed back to health. Then he attacked us”

    A better analogy might be Aesop’s fable of the Farmer and the Viper. Mostly because it’s the exact same thing, but Aesop carries more cachet.

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