{"id":24341,"date":"2013-06-17T17:53:58","date_gmt":"2013-06-17T07:53:58","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=24341"},"modified":"2013-06-17T17:53:58","modified_gmt":"2013-06-17T07:53:58","slug":"full-employment-is-still-low-unemployment-and-zero-underemployment","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=24341","title":{"rendered":"Full employment is still low unemployment and zero underemployment"},"content":{"rendered":"

\t\t\t\tYou won’t see much debate or coverage of the desirability of making full employment the central goal of economic policy these days. The politicians, infested with neo-liberalism, do not admit they have abandoned full employment as a policy goal. Instead, they lie and wheel out various flawed analyses that try to make out that full employment now occurs at much higher rates of labour underutilisation in the past. Norway tells us that that proposition is a lie. In Australia, the government still tries to suggest that a state where more than 14 per cent of available labour is idle in one way or another represents close to full employment and a justification for fiscal austerity. We believe them because we have been seduced by the lies and our educational systems have downplayed critical scrutiny. But until we cut through the swathe of lies and misinformation we won’t get back to the bountiful state of full employment where not only workers enjoy higher incomes but dignity becomes a priority. Whatever else the liars say, full employment is still a state of very low unemployment and zero underemployment.
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\nIn the latest IMF – Concluding Statement of the 2013 Article IV Mission to The United States of America<\/a> – which is the regular assessment that the IMF makes of member-state economies, the IMF continues to walk the tightrope between its bad austerity persona and its increasingly, pro-stimulus stance.<\/p>\n

It clearly blames fiscal deficit reduction attempts both within the US and abroad (“a weak external environment”) for the “tepid growth” in the US over the last year.<\/p>\n

In modelling likely political developments in the US it notes that its is assuming the:<\/p>\n

\n… the general government deficit will decline by over 2\u00bd percent, subtracting between 1\u00bc-1\u00be percentage points from growth in 2013 … On the fiscal front, the deficit reduction in 2013 has been excessively rapid and ill-designed. In particular, the automatic spending cuts (“sequester”) not only exert a heavy toll on growth in the short term, but the indiscriminate reductions in education, science, and infrastructure spending could also reduce medium-term potential growth.\n<\/p><\/blockquote>\n

That sort of narrative was also levelled at the UK recently and so we conclude the IMF is now making the case that it denied for so long – that there can be a fiscal contraction expansion – under present circumstances.<\/p>\n

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But, from an educational perspective, I thought the following statement was of interest. In cataloging the role of monetary policy at present, the IMF said that:<\/p>\n

\nThe prolonged low-interest rate environment could sow the seeds of future financial vulnerabilities as investors and financial institutions aggressively search for yield-despite the increased regulatory and supervisory focus on financial stability risks.\n<\/p><\/blockquote>\n

Just wait for the financial press reaction when treasury bond yields, which are currently very low, start to rise because the investment bankers start diversifying in search of higher yields (and higher risk).<\/p>\n

We will be flooded with claims that the cost of government spending has risen (it will not have!) and the road to government insolvency is fast reaching its end (the road is infinite – that is, not defined).<\/p>\n

On myths that persist, I thought the UK Guardian article (June 12, 2013) – The politics of full employment are the progressive answer to austerity<\/a> – was interesting.<\/p>\n

Regular readers will know that I have devoted my academic career to researching, in a variety of ways, the concept of full employment.<\/p>\n

I currently define a full employment state in Australia as being satisfied if:<\/p>\n

1. The official unemployment rate is between 2 and 3 per cent, leaning towards the lower edge of the band. So remaining unemployment is of a frictional nature – moving between jobs.<\/p>\n

2. There is zero underemployment – that is, no part-time workers signals they desire more hours of work.<\/p>\n

3. There is zero hidden unemployment – that is, participation rates are at their peak.<\/p>\n

We can debate the qualitative aspects of that quantitative definition, which bears on the quality of jobs defined under Criterion 1 and the lack of skills-based underemployment under Criterion 2.<\/p>\n

I think that is an important debate and aspiration. Regular readers will note that I consider “loose” full employment, which is defined as a market-determined outcome supplemented with a Job Guarantee, is the minimum state that a nation should tolerate.<\/p>\n

This state does not necessarily eliminate skills-based underemployment (especially during a serious downturn. The extent to which this type of economy (with a Job Guarantee buffer stock) eliminates skills-based underemployment will thus depend on the state of the economic cycle.<\/p>\n

At periods of high pressure, there will be very little skills-based underemployment but at other times there will be more. The introduction of a Job Guarantee provides an incentive to employers to upgrade the quality of their job offerings anyway to make sure they can profitably function above the Job Guarantee wage, which would become the wage floor.<\/p>\n

Clearly, loose full employment is the minimum state. The currency-issuing government should use its fiscal policy capacity to ensure that it pilots the labour market to achieve high quality employment within the inflation constraint. A high-wage, high productivity economy will provide better jobs (both within the public and private sectors) than a nation that feeds at the bottom of the productivity and wage levels.<\/p>\n

That is the context in which I read the UK Guardian article.<\/p>\n

The writer, Gavin Kelly considers that the notion of full employment should not be seen as the natural preserve of the Labour party in the UK (or elsewhere) and that the notion of:<\/p>\n

\nFull employment is not fantasy economics, but debate is squashed by economic complacency and fatalism …\n<\/p><\/blockquote>\n

The UK Guardian article delves into history and reminds us that in the UK the same circumstances that are apparent now (untrusted Labour leadership, insecure Conservative backbenchers sensing electoral defeat, “a recession-wearied public agitated about welfare bills and a stubbornly high deficit, and a welfare secretary seeking to focus public debate on the alleged failings of claimants” were operating 20 years ago
\nin Britain.<\/p>\n

Gavin Kelly says that:<\/p>\n

\nThese familiar circumstances confronted the last mid-term Conservative chancellor two decades ago. Ken Clarke’s response – to the surprise of many – was to remake the argument for full employment and a strong welfare state as key pillars of a properly functioning market economy. How times change.\n<\/p><\/blockquote>\n

The point is that while it is “in Labour’s genes to believe this issue is its own”, previous Conservative politicians have “insisted that Tory manifestos be committed to maintaining full employment as the ‘first aim of a Conservative government'”<\/p>\n

The reason no one talks about full employment now is according to the Guardian article due to “the troubling mix of economic complacency and fatalism that dominates much of today’s economic discourse”.<\/p>\n

Apparently, Brits are complacent because “the UK jobs market has performed better than many predicted with unemployment rising less than expected given the fall in output”.<\/p>\n

Really? At least the article notes the “2.5 million unemployed and 3 million under-employed” and points out that when politicians (all over the world” make statements such as they have overseen a “record numbers of jobs” created they also fail to emphasise the increase in the “adult population” over the same period.<\/p>\n

Of-course the labour market is bigger in most nations now – but good performance is about ensuring employment growth absorbs the population growth – that is, the employment-population ratio does not fall.<\/p>\n

In Britain the employment-population ratio has plunged since the 1970s, when the nation last enjoyed full employment.<\/p>\n

Here is a graph produced by the – St Louis Fred Data<\/a> showing the British employment to population ratio since the early 1970s.<\/p>\n

It is fair to say that the nation never really recovered from the Thatcher assault on full employment.<\/p>\n

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<\/div>\n

The Guardian article also notes that eliminating large employment gaps not only helps the unemployed gain work but also helps improve the fortunes of those currently employed:<\/p>\n

\n… those with jobs desperately need it too. In the post collective-bargaining era, a tight jobs market – where employers chase applicants as much as the other way around – is the best wages policy available to low and middle earners.\n<\/p><\/blockquote>\n

Which makes you wonder why the neo-liberals have been able to divide and conquer the workers into two broad groups – the robust workers and the lazy unemployed.<\/p>\n

How have they done that? – Ignorance fuelled by misinformation. See below.<\/p>\n

The Guardian claim that there is a “fatalistic mindset” in Britain based on the belief:<\/p>\n

\n… that the UK is afflicted with such intractable problems that to cast ahead to the possibility of full employment is to indulge in fantasy economics.\n<\/p><\/blockquote>\n

That is, neo-liberalism is TINA. Margaret Thatcher lives on.<\/p>\n

Inasmuch people perceive TINA, the problem is a lack of political leadership and an unquestioning willingness of lazy politicians to accept the flawed mainstream economics doctrines.<\/p>\n

The Guardian does acknowledge that the “the policy environment is shifting”.<\/p>\n

The IMF introduction is evidence of that. The doomsayers are running out of credibility even among those that might have believed their lies five years ago and never bothered to, for example, think of what has been going down in Japan for 20 years or more.<\/p>\n

We are seeing that “only the economically paranoid would discern inflationary risk emerging from our labour market any time soon” and that interest rates are not going through the roof despite the on-going deficits.<\/p>\n

I would put the “complacency\/fatalism” in different words. There is a systematic conspiracy among the elites to prevent governments from pursuing full employment. The elites comprising the captains of industry and the establishment politicians who feed off the largesse provided through the lobbyists working from the captains hate full employment.<\/p>\n

Why? Because it shares the real income around more equitably and shifts the balance of power back to the majority.<\/p>\n

So their approach is two-fold:<\/p>\n

First, they lie by suggesting that they all love full employment but that the level of labour slack which now defines full employment has risen – due to this and that.<\/p>\n

Please read my blog – The dreaded NAIRU is still about!<\/a> – for more discussion on this point.<\/p>\n

Second, they drown the populace in a swathe of mis-information to reinforce the lie. So all the austerity myths:<\/p>\n