New work on the benefits of full employment

August 29th, 2016 at 9:10 am

We’re not there (at full employment) yet, to be clear. I presented this paper last week at a conference–still a draft, but you’ll get the gist. And here’s an interview on the findings, conducted by an excellent interviewer who asked really hard questions.

Much of this will be familiar to denizens of these parts, but there’s a few new wrinkles. For example, while I’ve long documented the fact that tight job markets disproportionately helps the less well-off, I’ve done so largely through analysis of the building block of labor income: the hourly wage.

But here, I use new data to examine the impact of full employment on annual hours of work. The benefit gradient is similar, as you’ll see. I then map that onto to the annual earnings of affected workers and find pretty dramatic results, like the one you see below.

Source: my analysis.

Source: my analysis.

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6 comments in reply to "New work on the benefits of full employment"

  1. Smith says:

    There is not enough emphasis on the point high wage earners suffer less from the absence of full employment.
    Here is the data:
    When the economy gets a cold, the lower income groups get pneumonia. Even then there is little political reaction because during the worst downturn since the great recession, unemployment of the least skilled lowest paid peaked at 15%, so 85% were ok. Plus unlike the great depression, there was unemployment insurance and food stamps. Great that you have data, but this is also seems common sense.
    It’s necessary to but grossly insufficient to prevent the Fed from hiking interest rates, low rates still are pushing on a string. All the debate about counter cyclical monetary policy becomes a useless distraction playing defense against the interests pushing for a rate hike. You could pay corporations to take your money and they’d still use for buy backs, not useless expansion for non existent demand.
    Emphasizing low income worker effects is wrong because it ignores who runs the country and how America had previously leveled incomes ahead of Europe, by creating a large broad middle class aligned against the elite. You have a better chance of reform when you show the top 20% wage earners they’ve been ripped off by the top 1% for the past 20 years, as the 1% grabbed an extra 10% of national income, and even college graduates received near zero gains ever since 2000 and counting. Inequality skyrocketed all through the low employment 1990s by the way, setting up the self perpetuating political dynamic of the 2000s.
    Using slow economic growth, Philips Curve, NAIRU, the bludgeon of unemployment to curb inflation needs to be overthrown. Tobin through Krugman cited Kennedy vs. US Steel, but today instead we have the epipenation of our economy. Disconnect wage gains from inflation, inflation is caused by higher prices, period. End the ability of business to dictate prices through lack of competition, tax away profits to remove incentives for price hikes, keep labor power dominant over pricing to make spirals self defeating. Wage hikes do not cause inflation.

  2. Rick Wartzman says:

    Even though the guy from Fortune who interviewed you about your latest paper wasn’t quite as sharp as the guy from the WaPo, he wasn’t half bad.

    Your followers might like to see this, as well:

    • Jared Bernstein says:

      Agree! Fortune piece is excellent summary. If only someone would write a book about the bigger picture…what changed?…why? Ah well…

  3. James Mathews says:

    What if the ‘target’ (static, perfect) Fed rate, new national debt addition, etc was variable, dependent on new tech coming into the economy, the relative size of cohorts already owning homes vs those coming into homeownership candidacy, those with serviceable transportation vs those needing to invest in more, those on a good retirement investment track vs those in various states of shortfall, the current infrastructure deficit, vs the total infrastructure investment rate?

    Imagine a generally agreed on model for forecasting how much and what kind is needed, instead of trying to get to a static number! While always a better way to run a ship, I suspect this ship is currently seriously turned in the channel, and pointing the bow at the bouy marker will unnecessarily drag us thru the shallows for quite a while.

  4. PartTimer says:

    Thanks for sharing your insights.
    I learned a lot from your article.
    I am planning to apply for a job soon, this would really help me.