The notion of full employment as an attainable steady state is flawed by the the use of the view of a static target. Certainly we can agree that as a society, a productive, working populace with adequate opportunities for work – that’s not the issue. The issue is that shaping top-down policies around a view that 95% of the population should be employed at all times misses the mark by a huge margin for several reasons: Industry Shifts, Relative Cost Shifts, Education dislocations, and Geographic dislocations.
The world is a dynamic place, but imbalances occur and take time to come back to balance. And the longer those imbalances are allowed to persist, the more painful the reckoning when it comes.
Take any base of employment – the needs of that industry are not static. The productivity of workers in the field advances (or declines), the demands on the goods or services expand or contract, and the ability to provide those services at the most efficient level changes (comparative advantage).
When these shifts occur, workers are going to get displaced and jobs are going to get lost. And more times than not – those same jobs aren’t going to come back – no matter how much cheap capital, government stimulus programs, or animal spirits we get imposed on us. What is needed is new jobs and the skills to fill them – and a recognition that this is the permanent reality and not a bad dream.
To put some meat on the bones – let’s think about the US Housing market in the 2000’s.
- Huge Job Creation – industry expanded dramatically
- Learned skills in Finance, Construction, Realty, Local Govt., Landscaping, Home Improvement
- Large worker base was attracted to the industry by opportunity and compensation driven by demand outstripping supply.
- Industry as a % of the economy expanded to several times its long-term average as a big slice of the economy devoted itself to building, buying, selling, improving, and caring for – housing.
When this reverts to a sustainable level – there are huge numbers of mortgage brokers, Realtors, builders, and landscapers – that won’t be able to do that job anymore – period. They’re going to have to apply the skills learned in their previous job to something new, or they’re going to have to develop new skills to do something different – and importantly there is no basis for saying that what they earned before is relevant. This is hugely distressing and an under appreciated problem, but there is nothing inherent in the skill-set of a mortgage broker or a Realtor that warrants a six-figure paycheck – but the reference point of past earnings is a huge impediment limiting employment transition – people don’t want to take a step backwards – it’s just human nature – and this gums up the resetting of the workforce.
Until that resetting takes shape – it is just pushing on a string and silly political handwaving to say there is any chance of an economy of full employment. The mis-match between new opportunities for unemployement and the base of available workers is just too wide.
The evidence of this dynamic is seen in two places – first is the lower overall unemployement levels at higher education levels (my assertion being that college educated workers can adapt to a broader set of less commoditized roles), and second that there a huge numbers of unfilled job listings in the US where companies aren’t able to find qualified workers.
Obviously this isn’t the whole story – there are real biases towards the unemployed and unfair stigmas attaches to the capabilities of those out of work for extended periods. Age bias, workers viewed as overqualified, too expensive, or not worth the risk. This isn’t fair and the issues aren’t addressed by a view of overall workforce imbalances.
But, having said that, targeting full employment and implementing public policies directed at trying to force the economy to get there – ignores the structural imbalance in the economy and blindly trusts that with free money, government stimulas, and tax cuts for “job creators” – without prioritizing the structural changes in the economy, policy-makers are driving a speeding car navigating through the rear-view mirror.
Who’s to say that 4.5% structural employment is the proper target given today’s 9-10% unemployment level and the current makeup of the workforce skills and demographics? Perhaps I’m missing the presence of this analysis, but at minimum a careful investigation of the jobs flows (meaning specific Industries losing and gaining jobs matched with skills of unemployed) should be a starting point.
If, for example getting to a unemployment rate of 4.5% with today’s economic structure would require industries like home-builders to return to 2005-06 levels, then we’re wasting our time. That’s not going to happen and better policy would be to identify and force a retraining of that section of the workforce. Admittedly still an unwieldy and blunt policy directive, but better than just cutting interest rates and crossing your fingers.