26. "Full Employment" As The Goal

0:00Chapter 26, Full Employment as the Goal The contribution of Keynes that his disciples most often insist upon as valid and permanent is the substitution of full employment as the goal of economic activity rather than the maximum production of the classical economists. We shall ask here three main questions about full employment. 1. Is it definable? 2. Is it attainable? 3. Is it, at all times and under all conditions, even desirable?

0:45Is it definable? Let us begin with the question of definition. The man in the street has few misgivings about this. Full employment means that everybody has a job. It means jobs for all the people, all the time. This naive conception runs into immediate difficulties. Early in 1958, for example, the population of the United States was about 173 million. But there were only some 62 million employed. Therefore, there must have been 111 million unemployed.

1:36Yet the official estimate was that there was at that time only 5 million unemployed. For the government statisticians, the unemployed consist only of those in the labor force who are not employed. But just how was the line drawn between the 67.5 million who are counted as part of the of the Labor Force, and the 105.5 million who were not. Here is how the U.S. Bureau of the Census described how it decided. Monthly estimates of the population of working age 14 years and over, showing the total number employed, the total number unemployed, and the number not in the labor force are obtained from a scientifically selected sample of about 35,000 interviewed households in 330 areas throughout the country.

2:36So the estimate of unemployed was in large part based on a sample of only one in every 1,400 households in the country. My purpose here, however, is not to emphasize the probable error in such estimates, but but to call attention to the necessarily arbitrary and, in some cases, purely subjective standards by which unemployment is officially determined. The Bureau of the Census's explanation continues. The unemployed total includes all jobless who are looking for work. How is the number of such persons estimated?

3:22Some Replies to the Interviews. What constitutes realistically looking for work? The interviewers must rely in large part upon the realism of the replies. The labor force is not even a constant percentage of the total non-institutional population. In July of 1957, it was 60.6%, but in December only 58.1%. Some paradoxical results emerge. The monthly report for March of 1958, for example, opened as follows.

4:09Employment rose by 300,000 between February and March, while unemployment was unchanged. How could that happen? The layman would naturally expect that if employment rose 300,000 in March, unemployment would have dropped that much. The government statistician's answer is that the labor force increased by that much. The labor force increases partly by census estimates of the population reaching working age, etc., but also partly by changes in people's decisions. Suppose a man has a good job with a wife at home and a son and daughter in college.

4:57He loses his job whereupon not only he but his wife, his son and his daughter start looking for Work. Because one person has lost his job, four persons are now unemployed. So unemployment goes up faster than employment goes down. Let's turn now to the explanations of the Department of Labor. Effective January 1957, persons on layoff with definite instructions to return to work within 30 days of layoff and persons waiting to start new wage and salary jobs within the following 30 days are classified as unemployed.

5:44Such persons had previously been classified as employed. The combined total of the group's changing classification has averaged about 200,000 to 300,000 a month in recent years. So the unemployed increased by about a quarter of a million simply by a change of definition. We get into the same kind of problems and arbitrary decisions when we come to the matter of working hours. Obviously, there cannot be jobs for all the people all the time. We must deduct time for eating, sleeping, rest and leisure.

6:30But how much time? It is customary to think of men being partly unemployed when they are laid off for two working days a week. But obviously, they are as much unemployed if they work every day for correspondingly reduced hours. In the United States today, the standard full working week is 40 hours, or 5 8-hour days. This is shorter than the standard working week used to be, and in future it may be shorter still. Obviously, the length of the working week that constitutes full employment is also a matter of arbitrary and conventional definition.

7:17Let us see whether we can get some help from the academic economists and, first of all, of course, Keynes. In the general theory, Keynes gives us two definitions, neither of which seems to have much relation to the other. On page 15, he gives an involved definition of involuntary unemployment, which, as I have already tried to show, page 30, is invalid. From this, he postulates a state of affairs in the absence of involuntary unemployment. This state of affairs we shall describe as full employment, both frictional and voluntary unemployment being consistent with full employment thus defined.

8:08Page 16 In other words, full employment is a state in which there can be both frictional and voluntary unemployment. Full employment is not full. Let's start again, this time with the definition on page 303. We have full employment when output has risen to a level at which the marginal return from a representative unit of the factors of production has fallen to the minimum figure at which a quantity of the factors sufficient to produce this output is available. I confess I find it difficult to follow this jabberwocky, but I assume it implies that some sort of equilibrium has been reached.

9:00One is tempted to ask irreverently, does this mean that Uncle Oscar has a job? Let us turn to A. C. Pigot. Professor Pigot is aware of some of the difficulties we encounter when we try to define unemployment. A man is only unemployed when he is both not employed and also desires to be employed. Moreover, the notion of desiring to be employed must be interpreted in relation to established facts as regards, one, hours of work per day, two, rates of wage, and three, a man's state of health.

9:47This definition reveals that many subjective and arbitrary elements enter into the concept of unemployment, but we shall see presently that there are many more difficulties than even Pigot's definition allows for. After considerable discussion, Pigot ends up with the conclusion that, The quantity of unemployment prevailing at any time is equal to the number of would-be wage earners minus the quantity of labor demanded plus the number of unfilled vacancies. It is important to notice here that the number of would-be wage earners is not only largely a subjective rather than an objective quantity But that the quantity of labor demanded and the number of unfilled vacancies are also largely subjective rather than objective, because they depend on the changing intentions of employers.

10:55If I could get a man to mow my lawn at a certain hourly rate, there would be an unfilled vacancy at that rate, but if the professional gardeners available all demand more, I may decide either to mow my lawn myself or to let it grow. This principle applies throughout history. Whether there are unfilled vacancies in a given firm may depend not only on the wage In another place, Pigot writes, A contrast is often drawn between situations in which there are more men available for jobs than jobs available for men, and situations in which there are more jobs than men.

11:53In the former class of situation, we have less than full employment, that is, unemployment, in the latter, more than full employment, that is, over-full, or more briefly, over-employment. All this looks extremely simple, but the difficulty of statistical quantification, or deciding precisely what the numerical relationship is of men available to jobs available, is precisely the difficulty of defining not only what is meant by men available, but what is is meant by a job, particularly when it is unfilled.

12:40Let us try Sir William Beveridge. In his Full Employment in a Free Society, he defines full employment in his opening pages as having always more vacant jobs than unemployed men. The labor market should always be a seller's market rather than a buyer's market. But this is obviously defining full employment as over-employment. Incidentally, Sir William's demand that there must always be more vacant jobs than unemployed men is a demand that labor should always be underpaid. For this condition could only exist if the marginal product of labor were higher than and its wage rate, and labor, though fully employed, would therefore be getting less than its full potential income.

13:38One of the most realistic discussions of the difficulties in the concept of full employment is that of Edwin G. Norse, formerly chairman of the President's Council of Economic Advisers. Quoting upon the Declaration of Policy in the American Employment Act of 1946, he writes, The phrase, those able, willing and seeking to work, does not define a labor force for whose optimum utilization the Federal Government can, in good economic conscience, pledge itself to utilize all its plants, functions and resources. In the absence of objective criteria, the word able becomes practically meaningless.

14:29Whether a given person is, in a commercial or industrial sense, able to work, is a decidedly relative matter. Able to work steadily or only intermittently. At the kinds of work for which demand presently exists, only with other skills or without

15:20Authoritarianism might be getting his nose under the tent of free enterprise. But does it mean willing to work at such jobs as are available or only at the job of one's dreams? Willing to work on a time schedule dictated by employer's needs or by worker's convenience? Seeking is of necessity the criterion relied on by the Census Bureau in giving us a monthly Estimate of Involuntary Unemployment. But wanting would be a more apt term for our purpose since it is a commonplace in the experience of all who have dealt with the unemployed to find not a few persons who want work, may even need it desperately, and who yet are not actively seeking a job because they have become convinced that the search is hopeless.

16:18The plain fact is that the size of our labor force is statistically determinate only within the limits of quite categorical definitions. When we speak of full employment, therefore, we would do better to use the term not as the Keynesian zealots use it, and not with any effort at an unattainable mathematical If it be objected that this is not, in fact, a definition of full employment, and it is certainly not brimful employment, then I suggest that the term might be dropped entirely and the term optimum employment used instead.

17:10This would have, among other advantages, that of reminding the user, as well as his audience, that employment is rather a means than an end, and that its optimum size is relative to other conditions or goals. Is it attainable? Is full employment attainable? Here, even those who favor the goal begin to waver. Alvin Hansen, in his definition of full employment in Economic Policy and Full Employment, declares that In an economy as large as that of the United States, it is probable that at full employment there would be at any one time between two and three million temporarily unemployed.

18:064.5% of the civilian labor force of 1945-47. Paul Douglas, commenting on Beveridge's use of a 3% margin for seasonal and transitional unemployment, declared that such a criterion would be fatal in the United States. To use deficit financing to drive unemployment down So, when full employment is seriously discussed, it turns out to be less than full employment.

19:03And the desirability of full employment at whatever cost is gravely questioned. Lionel Robbins, quoting the beverage definition of full employment as having always more vacant jobs than unemployed men, points out that a state of affairs in which at current rates of wages the demand for labor is continually greater than the supply must be a state of of Affairs in which, in the absence of special restraints, the level of wage rates and hence the level of prices is tending continually to rise. He goes on to point out that even a full employment policy that tried to guarantee a mere equality of jobs and applicants would have to guarantee the trade unions that whatever wage rates Edwin Norse, in the article from which I have previously quoted, declares that, Ideally full employment would be such as promotes continuous maximization of production and real purchasing power for the people.

20:39But this definition recognizes that full employment is desirable not as an end in itself, but only as a means to much broader ends. Even the maximization of production must be understood, not in the sense of the mere piling If we are talking not of unavoidable means but of desired ends, then we must recognize that the economic objective of mankind is not more work but less.

21:31I hope I may be forgiven for quoting what I have written in another place. The economic goal of any nation as of any individual is to get the greatest results with the least effort. The whole economic progress of mankind has consisted in getting more production with with the same labor. It is for this reason that men began putting burdens on the backs of mules instead of on their own, that they went on to invent the wheel and the wagon, the railroad and the motor-truck. It is for this reason that men used their ingenuity to develop a hundred thousand labor-saving inventions.

22:17All this is so elementary that one would blush to state it if it were not being constantly forgotten by those who coin and circulate the new slogans. Translated into national terms, the first principle means that our real objective is to maximize production. In doing this, full employment, that is, the absence of involuntary idleness, becomes a a Necessary By-Product, but production is the end, employment merely the means. We cannot continuously have the fullest production without full employment, but we can very easily have full employment without full production.

23:05Primitive tribes are naked and wretchedly fed and housed, but they do not suffer from unemployment. India and India are incomparably poorer than ourselves, but the main trouble from which they suffer is primitive production methods, which are both a cause and a consequence of a shortage of capital, and not unemployment. Nothing is easier to achieve than full employment, once it is divorced from the goal of full production and taken as an end in itself. The labor provided full employment with a huge armament program. The war provided full employment for every nation involved.

23:51The slave labor in Russia had full employment. Prisons and chain gangs have full employment. Coercion can always provide full employment. The progress of civilization has meant the reduction of employment, not its increase. It is because we have become increasingly wealthy as a nation that we have been able virtually to eliminate child labor, to remove the necessity of work for many of the aged, and to make it unnecessary for millions of women to take jobs.