John Buell

The Politics of Full Employment

What will be the fate of those middle aged, high school educated workers among whom a stunning the suicide/drug overdose epidemic emerged in recent years? Their future is in part in the hands of elites whose worldview and life experience make them still too little attuned to the needs and concerns of these working class Americans.

Their fate depends in part on the seemingly technical question of whether we have reached “full employment.” Just where that bar is set is a reflection of whose burdens and risks matter most.

Recent news reports suggest that with an unemployment rate of 4.7%, we are at or near full employment. The assumption is that if demand for labor increases beyond this point, the economy will begin to experience inflationary pressures, perhaps even a dangerously increasing inflation. This fear is premature at best and wildly exaggerated at worst. Job creation has been robust in recent months but the unemployment rate has remained relatively stable. In addition, wage pressures remain subdued. These facts suggest that the low headline jobless rate in part reflects a labor market where many workers had simply withdrawn even from the search for work. Now as conditions improve, they have once again begun the search, but many still remain outside, thus constituting a cushion against inflationary pressure.

Allowing the labor market to tighten further means two things in human terms. Even the long- term unemployed, who have the hardest time finding work—in part because of employer attitudes- have a better chance of finding work. This in turn has social and psychological consequences beyond putting pay in their pockets.

Above a certain point job creation is inflationary, but that point is a subject of contention, and that contest has political and social consequences. Select a relatively high number of full employment and workers can be easily fired and will have no options except to defer to the boss, not only on pay, but also on working conditions. Create a market where every worker can easily get a job and workplace conditions and pay can be negotiated between more equal parties. Since the l980s, the bargaining scales have been increasingly tilted against labor as a consequence of attacks on unions and capital flight. Bard College economist Paulina Tcherneva has shown that with every successive business cycle expansion of the the postwar period, a smaller and smaller share of the gains in income growth have gone to the bottom 90 percent of families. Worse, in the latest expansion, while the economy has grown and average real income has recovered from its 2008 lows, all of the growth has gone to the wealthiest 10% of families, and the income of the bottom 90 percent has fallen.

Business economists want to err on the side of slow growth and relatively high measures of “full employment” out of fear of workplace turmoil and workers’ gains reminiscent of the late sixties and early seventies. Alan Greenspan took the risk of allowing a lower full employment number and felt that he succeeded because of the emerging digital technology. I believe there was an institutional factor as well, the weakness of organized labor.

The Federal Reserve appears eager to assure business and the bond market that it will err on the side of slow growth and a precautionary cushion of workers outside the labor market. Asked at a recent press conference why the Fed had raised rates despite low wage growth, Janet Yellen responded: “I would describe some measures of wage growth as having moved up some. Some measures haven’t moved up, but there’s is also suggestive of a strengthening labor market.” As Mike Whitney, writing in Counterpunch, puts it, “‘Suggestive’? In other words, the mere hint of improving conditions in the labor market – which could result in higher wages – is enough to send Yellen into a rate-hike frenzy? Is that what she’s saying?”

Even if low levels of unemployment lead to substantial cost push inflation, is the only answer to sacrifice a part of the population and to sow fear in the hearts of employees? Even wage and price controls would be better. More imaginatively workers could demand and accept a growing equity share and capital investment in their corporations. This would enable productivity gains that would offset inflationary pressures. But even if such schemes are difficult politically or logistically there is an important ethical issue that ought to be open to democratic debate. Should growth and efficiency overrule concerns about equity, solidarity? Perhaps a society marred by high levels of inequality and insecurity is less desirable, even if its growth rate is world class. It is not clear that our choices are that stark. Our extraordinarily unequal society has also been marked by slow growth. What is clear is that technical disputes regarding full employment have serious ethical consequences.

John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email jbuell@acadia.net.

From The Progressive Populist, May 1, 2017

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