How far can full employment get us?

Full employment–a version of the US economy where anyone who wants a job has one–is an important complement to welfare for poverty reduction, but ultimately not a substitute for welfare.

Why is full employment important?

Full employment means more labor income for people. A single person working full-time and full-year will have income above the poverty threshold, even if earning the minimum wage.

Typically full employment is also associated with less discrimination in hiring and with workers getting a stable share of output growth. Achieving full employment also better positions the US to provide for people who cannot or should not be working.

Are we at full employment?

The US is likely close–within a few million jobs–to full employment. Many economists had expected runaway inflation as the US unemployment rate fell below 5.5% but inflation has been well-contained. Unemployment is now around 3.5% which is near to historical lows.

What can’t full employment do?

People who live in income-sharing arrangements (for example a family) where the number of non-earners (for example: children, elderly, work-limited disabled, caregivers, students, etc) exceed the number of earners are at a major disadvantage, even under full employment, relative to those who live with more earners than non-earners. That is, a single mother of three kids will be relatively better off with full employment than without full employment, but is likely to struggle financially even with full employment.

The previous example is fairly intuitive, but what people don’t realize is just how few people actually work full-time and full-year, even in a near-to-full-employment economy.

In 2018, no part of the US had even 42% of its total population working full-time and full-year:

Screenshot from 2019-12-18 13-22-23

The map shows commuter zones–groups of counties that form local labor markets. Even with the economy near full employment in 2018, no part of the country has a majority of its population fully-employed. That is, even when the US is maximizing its number of workers, it still isn’t getting labor income to half of people. Reaching people not reached by labor income in full employment is precisely what welfare is for.

Data reject the argument that welfare is not needed in full employment. Non-earners comprise a large share of every country’s demographic picture, even at full employment, and non-earners are unevenly distributed within families. This combination means poverty cannot be solved through labor income alone. Existing welfare programs in the US, like unemployment insurance, provide income for earners who lose their job; separately, there are welfare programs that provide income to non-earners regardless of the state of the economy, such as low-income, low-asset elderly reached through Supplemental Security Income. Other countries show that adopting additional programs, for example making the child tax credit fully refundable, is the most effective way to reduce poverty from its stubbornly high rate.

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