It appears that the US labor market will not give up, no matter how many times the Federal Reserve hits it with the frying pan of increased interest rates. The September employment survey recently reported 336,000 new jobs, more than expected.Thank you for reading this post, don't forget to subscribe!
Left-wing economists have called the combination of President Biden’s American Rescue Plan and the pandemic rescue packages that preceded them (almost entirely designed by Democrats) a “big fiscal” one, and that it would lead to the sharpest economic recovery since the wartime spending of the 1940s. have improved.
The full employment created by the Big Fiscal has sparked debate among progressives about what to do with the Biden economy. One faction argues that Biden has done little about inflation, rising rents and home prices and other problems, which is why he gets poor marks in surveys about the economy. Others argue that Biden’s economy is doing much better than it has been in the last 20 years.
In my view, everyone should agree on at least one thing: The last few years of low unemployment have been great.
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Now, let me admit in advance that the deniers are right in saying that there are many aspects of economic life which a job in itself cannot touch. The bulk of the population is made up of categories of people who cannot, should not or have difficulty working, such as children, students, disabled people or elderly people. This is why only about half the population is working at any one time, and why it is so important to build a welfare state to provide income to all those non-workers, especially when prices rise. That’s why Joe Manchin’s killing of the expanded child tax credit was such a tragedy.
Similarly, creating jobs will not solve the housing affordability crisis in many cities, or the broken health care system, or the burden of student debt, although it may help individuals deal with all three problems.
However, full employment is still extremely beneficial for many reasons. The first is that those who need jobs most – the long-term unemployed, ex-convicts, high school dropouts, and similar populations, who are largely non-white – are generally under-hired. They are the last ones to leave. The Big Fiscal means taking the employment rate among younger workers to 80.9 percent, the highest level in more than 20 years and the second-highest rate in U.S. history.
As Michael Harrington explains in his book Other AmericaUnemployment represents more than loss of income. This is also a loss of position, dignity and self-respect. It’s no coincidence that the Rust Belt regions hardest hit by deindustrialization are ground zero for opioid overdoses, alcoholism, crime, and other social ills, as well as fear mongers around social issues and attempts to solve everything. There is also an attraction towards people who make promises.
Second, and related, driving a rapidly expanding labor market reduces income inequality. At Politico, Victoria Guida shows that between 2020 and 2022, the 10th percentile of workers (that is, if we divided workers into 100 groups based on income, and examined the tenth group) will see a 5.7 percent increase in inflation-adjusted wages. received a salary increase of 5 percent, while 90th-percentile workers saw a 5 percent pay cut. This naturally led to a decline in income inequality—economists David Autor, Arindrajit Dubey, and Anne McGrew estimate that a quarter of the increase in inequality relative to 1980 has been reversed over that period.
The Big Fiscal means taking the employment rate among younger workers to 80.9 percent, the highest level in more than 20 years and the second-highest rate in U.S. history.
This is because full employment changes the character of the labor market in a highly welcome way. When unemployment is high, jobs are scarce, and those at the bottom of the social scale have no choice but to accept whatever terrible pay and working conditions they receive. But when unemployment is low, jobs are abundant, and workers have the ability to demand more, or leave jobs to find better jobs. Employers offering difficult, unpleasant, low-paying jobs, such as restaurant and hospitality work, suddenly had to offer huge pay increases to fill the positions.
Its ethnic dimension deserves special attention. In normal times, the black unemployment rate is nearly double that of whites. But thanks to this strong labor market, that’s no longer true, as black unemployment has fallen to its lowest level on record, along with the smallest black-white unemployment gap on record. The overheated economy of World War II saw even more rapid convergence between racial groups. Full employment, in short, is emphatically anti-racist.
Third, full employment is good for unions. When wages are rising and labor is scarce, workers become more confident in risking an employer’s response by organizing a union or calling a strike. It is no coincidence that the last few years have seen the most radical union action in decades – potentially marking a turning point in Labour’s long membership decline.
Some skeptics of Bidennomics have correctly pointed out that the effects of the tight labor market are temporary. The labor market is already quite soft by 2022, especially on wages, and a recession will happen sooner or later. But if the labor movement can use the strength of these few years to push back the unions, they will be able to win better benefits with higher wages and contracts. In fact, just last Friday, UAW President Shawn Fenn announced that General Motors has agreed to keep its new battery factories under its master union contract.
As an aside, I want to emphasize that I’m not praising the work here. On the contrary, as I argued in a paper for the People’s Policy Project, Americans on average work much more than our vast wealth would suggest. We are demanding a broad extension in mandatory holidays, public holidays, shorter working weeks, etc. But such a goal does not compromise the benefits of full employment. Conversely, by cutting labor supply among those already employed, the furlough policy would drive structural labor demand into the most underemployed demographics. There should be an abundant supply of jobs for anyone who wants to work, and those jobs should be accompanied by plenty of time off.
At any rate, I must admit that I have a personal stake in this debate. When the American Rescue Plan was being debated, I argued against Larry Summers’s notion that its size should be reduced because it could lead to inflation. I said the balance of risks was not even close – on the one hand a continuation of the economic losses of the 2010s, but on the other some inflation that would cause only moderate pain. Inflation came—and although I don’t believe Summers was right about its causes, which had more to do with the pandemic and the war in Ukraine than Big Fiscal, it proved quite unpopular.
Maybe I was worried about the political risk of raising prices. But I think my moral ranking of the risks was right, and I think progressives should be careful about complaining too much about Bidennomics. If the economy of 2023 is really that bad, a logical conclusion would be that Summers was right, and the long-term unemployed must be sacrificed in the service of price stability.