In his Washington Post column this morning Jared Bernstein writes about full employment:
A number of top-flight economists with whom I usually agree, most notably Paul Krugman, assure me that the U.S. job market is at full employment, meaning … actually, it’s not easy to describe what we mean by full employment. The easiest explanation is that that everyone who wants to work and is reasonably able to do so has a job that provides them the hours of work they want.
Let’s stop right there. The very first lesson I learned in economics and, I assume, the very first lesson learned by Drs. Krugman (an economist) and Bernstein (not an economist so I don’t honestly know whether he’s ever taken an economics course) was that supply, demand, and price cannot be discussed in isolation from one another.
What is the supply of labor available at $1/hour? What at $100/hour? There is no such thing as “full employment” in isolation from the entire potential pool of workers, wages, and business practices.
This generates a testable hypothesis. If the unemployment rate continues to fall, say to 3.5 percent or even lower, as some forecasters believe will occur, that’s when we’ll see wages for middle-class and low-income workers take off. Depending on the trajectory of unemployment, we’ll see if I’m right by later this year or next.
Not exactly. When the pool of workers can grow indefinitely—just off the books—the size of the pool can’t be measured. When you can’t measure the number of workers in the entire pool, what they’re being paid, or the conditions under which they’re working, the unemployment rate is meaningless.
For generations U. S. policy has been to maximize the number of minimum wage employees (the Germans call it “the American strategy”). That has been accompanied by loose enforcement of immigration laws, a large volume of legal immigration, and lowering or elimination of import duties. Businesses have become accustomed to those policies. Whole business models depend on them.
My view has long been that we need to change that. There are some businesses that shouldn’t be profitable in the U. S. Businesses shouldn’t be able to depend on a reliable stream of workers who’ll work for low wages.
Wages should be higher.
We need to decide what kind of country we’ll be and we need to change what we’re doing to match that. There will be pain. But I think most of us will be better off for it.
I assume you are speaking of limiting immigration, not raising the minimum wage? And Dave, does this post mean you see the value in collective bargaining?
If it’s an issue of immigration, we could deal with that through the NAFTA negotiations by demanding Mexico institute a livable minimum wage. It would also largely eliminate the intra-corporate shuffle of goods across the border to take advantage of low-paid workers.
That strikes to the heart of my problem with our relationship with Mexico. We tolerate their bad governance as long as they keep sending low wage workers.