UNCOMMON SENSE 3 © Revised July 1997
by Helen Lachs Ginsburg, Professor of Economics, Brooklyn College of the City University of New York, and Executive Committee, National Jobs for All Coalition, and Bill Ayres, Director, World Hunger Year and Advisory Board, National Jobs for All Coalition.
In early 1995, when the official unemployment rate was about 5.5 percent, Wall Street executives and financial experts lamented the declining rate of unemployment. Were growing too strongly, one specialist claimed. We have passed through the natural rate of unemployment.
At the time he spoke, more than 17 million Americans wanted jobs but didnt have them or were working only part-time because they couldnt find full-time work.
Official unemployment currently (June, 1997) is 5.0 percent. Wall Street is joined by many economists who believe in a natural rate of unemployment. They claim that lower unemployment rates will trigger accelerating inflation by pushing up wage rates. Thus they favor policies designed to keep unemployment from falling too low or to push it up if the unemployment rate falls below what is also called the non-accelerating inflation rate of unemployment (NAIRU). Perversely, they actually use the terms natural rate of unemployment, NAIRU, and full employment interchangeably. In 1995, most considered 6 percent unemployment (or even more) to be full employment. Now that unemployment has fallen below that level with no sign of inflation, some have revised the NAIRU downward, so this rate is now considered full employment.
Some eminent economists such as Robert Eisner, however, dispute that the NAIRU even exists. In recent research, for example, Eisner, a past-president of the American Economic Association, finds a lack of empirical support for the NAIRU and for the policies based on it. In fact, according to his research, lowering unemployment below the so-called NAIRU might actually reduce rather than increase inflation! [Our NAIRU Limit: The Governing Myth of Economic Policy, The American Prospect, Spring 1995, 58- 63.] However, despite a lack of evidence for what Eisner calls the dominant dogma, he believes that while unknown to the general public, the NAIRU has become one of the most powerful influences on economic policy this century.
Not that long ago, after World War II, when full employment rightly focused on people, not prices, it was considered to be about 2 percent unemployment. Better yet, to most people it meant that all those who wanted work could find it at a living wage. But no longer. Over the years that figure has risen from 2 to 3 to 4 to 6 percent as unemployment itself has risen.
Who benefits when unemployment rates are high? Bondholders, who fear that inflation will erode the value of their holdings, advocate higher unemployment rates. Under their pressure, the Federal Reserve raised interest rates seven times in less than a year in 1994 and early 1995, even with no evidence of inflation in sight. The higher interest rates were intended to prevent any risk of inflation by slowing down the economic recovery and keeping unemployment from falling too low–thus protecting bondholders and raising their returns while driving up the interest cost of government debt.
Corporations also benefit from high unemployment: workers are less likely to complain about wages or working conditions. It also weakens unions and environmental controls as workers and communities compete for jobs.
Lets get the facts straight. Six percent unemployment is not natural, and its not full employment. Nor is 5.0 percent, the average jobless rate in mid-1997. Heres what 5.0 percent unemployment means to Americans:
Officially unemployed 6.8 million
Part-time workers who want
but cant find full-time work 4. 0 million
People who want jobs but are
not counted in the official statistics* 5. 3 million
_________ 16 .1 million
*In order to be included in the official unemployment statistics, an unemployed person must be available to take a job immediately and has to have searched for work during the past four weeks. About 1.4 million of those who want a job but are not included in the official statistics are available to take a job and have searched for work in the past year, but not in the past four weeks. Some of these are considered discouraged workers by the Bureau of Labor Statistics–those who have become too discouraged by their job prospects to continue looking for work..
Here is what is truly unnatural: 16 million people in the United States want work and dont have it or are working part-time because they cant find full-time work, a number exceeding the populations of Arkansas, Arizona, Rhode Island, Maine, Nebraska, and Colorado. Only in an Alice-in-Wonderland world could this be considered full employment or natural or desirable. The United States needs policies to put us on the road to real full employment: a job at decent wages for everyone who wants to work.
For further information about the true extent of unemployment, see Sheila D. Collins, Helen Lachs Ginsburg, and Gertrude Schaffner Goldberg, JOBS FOR ALL: A PLAN FOR THE REVITALIZATION OF AMERICA, Apex Press, 1994, pp. 42-48.
_________________Editor: June Zaccone, Economics (Emer.), Hofstra University