Author: Adam

The State of Full Employment

The State of Full Employment

Worker productivity has fallen, and experts are puzzled. I’m not. We’re all just tired of hearing our politicians talk about “full employment.” They mean full employment in general, and they mean full employment with a job, not full employment with your current skill set and job satisfaction.

“With full employment,” I write in “The State of Full Employment,” “economists and political commentators are using a variety of concepts to talk about the economy. Some are more appropriate than others, but in all cases they tend to use a number of words interchangeably. For example, instead of using the phrase “full employment” as politicians have been saying for two decades, we should probably use the words “unemployment” and “underutilization.”

There is a difference of opinion about what unemployment is. At the high end of the spectrum, there are economists who believe that the real rate of unemployment is the rate of underutilization (that is, what we should see if we let the labor market function as it is supposed to function, with workers going to work and employers taking the risk of hiring people). This, it seems, is the definition of full employment. At the other end of the spectrum, there are “economic realists,” who believe that in modern economies, even in the absence of government intervention, workers’ bargaining power determines what their jobs will be like. In such an economy, real unemployment is simply the rate at which workers get “bargained down,” so-called, to what the employers are willing to pay.

The trouble is that neither approach makes for a very good, or even a complete, picture of employment and unemployment. As a result, neither approach is a good basis for thinking about full employment.

When we talk about the current employment situation, we need to distinguish between the employment situation today and what economists call “perspective employment,” which is what the actual employment situation will look like with an economy that is fully operating according to normal market conditions.

The current employment situation is that workers are only getting paid half as much as they used to. That is, on average,

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