THOUGH yesterday’s employment report revealed a slowly improving job market, the jobless rate is still elevated, at 7.5 percent, with 11.7 million people looking for work, including 4.4 million who Have been doing so for at least half a year. About eight million more were stuck in underemployment (“involuntary” part-timers) last month, unable to find the hours of work they sought.
These measures persist amid an economic expansion continuing since mid-2009, a roaring stock market and a housing market that’s now reliably in recovery.
While the high jobless numbers are partly a legacy of the Great Recession, the fact is that our economy has generated too few Jobs for most of the last 30 years and is likely to continue to do so. The only viable response is a return to an idea that once animated domestic policy making: full employment, the notion that everyone who wants to work should be able to find a job, and if the market isn’t up to the task, then the government must fill the gap.
For decades in postwar America, the maintenance of full employment, defined as an unemployment rate below 5 percent, was enshrined in law, beginning with the [Dear Guest/Member you can't see link before click here to register] and revisited in 1978 in the [Dear Guest/Member you can't see link before click here to register]. It 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.
Economically, a number of trends Have created persistent, upward pressure on the jobless rate. Since 2000 — the last time the market was at full employment — productivity is up about 30 percent, while employment has been flat. And that’s not just because of the recession; the same pattern prevailed during the 2000s expansion.
One explanation may be that capital investment has become, to put it politely, more “labor saving.” Yes, this process has been going on forever, but robotics and other ways of automating tasks may be accelerating it.
Second, our large and persistent trade deficits Have exported too much demand. There’s nothing wrong, and a lot right, with increased global trade. The problem comes when it stays out of balance for so long, as it has in America, with trade deficits averaging 5 percent of G.D.P. in the 2000s, compared with 1 percent in the 1990s. That’s millions of net Jobs lost.
Third, a growing number of economists believe that our very high levels of inequality are not just whacking the incomes of the “have-nots” but are slowing job growth as well. Part of this works through the demand channel: with so much spending power in the hands of so few, consumer demand is becoming bifurcated. Walmart will do well on one end, Neiman Marcus on the other, with too little in between. Another part works through misallocation: too much economic activity devoted to “innovative” finance and too little to sectors more germane to middle-class Jobs and incomes.
What would it take to reverse these trends? For one thing, in the near term, do no harm. Austerity, including sequestration, is the economic version of medieval leeching. The Federal Reserve continues to apply high doses of monetary stimulus, and that’s supporting low interest rates, which in turn are linked to the improving housing market. But it can’t do it alone, and Congress is counteracting such tailwinds with fiscal headwinds.
We also need a significant, permanent program to absorb excess labor (an explicit part of the Humphrey-Hawkins law). We should consider restarting and rescaling a subsidized Jobs program from the 2009 Recovery Act that, though relatively small, made Jobs possible for hundreds of thousands of workers.
And we Have to reassess our manufacturing policy, including reducing the trade deficit. That means both reshaping our dollar policy — going after competitors who suppress their currencies’ value to get an edge on net exports — and public investments in areas Where clean energy intersects with production.
Finally, financial deregulation has become the enemy of full employment: it funnels capital to unproductive parts of the economy, and plays a key role in the “shampoo cycle” of bubble, bust, repeat. Less volatile capital markets mean fewer shocks to the job market.
If that is too interventionist, there’s another approach. Like many European countries, we could ask less of our people in terms of work, and hold them harmless by broadly redistributing our productivity gains. But I don’t see that in our future. What I do see is a growing disconnection between growth and jobs. Setting a path to full employment is the best way to alter that dark vision.
[Dear Guest/Member you can't see link before click here to register], a senior fellow at the Center on Budget and Policy Priorities, was economic adviser to Vice President Joseph R. Biden Jr. from 2009 to 2011.