economic policy

Letting the Economy Create Jobs for Everyone Is (Sadly) Radical

If you raise wages, they will come. Photo: Frederic J. Brown/AFP via Getty Images

Everyone in American politics believes that jobs should be plentiful and wages should be high — they just disagree about how to achieve those outcomes.

Or so our nation’s political rhetoric might lead one to believe.

When Republicans lambaste Joe Biden’s proposed corporate-tax hike, they do not warn of smaller dividends for shareholders but rather fewer jobs and lower wages for working people. And when Democrats advocate for their president’s climate plan, they don’t promise higher returns for green investors but good-paying jobs for blue-collar laborers. In fact, it can be hard to find an argument for or against any economic policy — whether delivered on the campaign trail or in Congress, by a liberal or a conservative — that doesn’t at least tacitly stipulate that jobs should be abundant and public policy has a role to play in producing such abundance (if only by getting “big government” out of the job creators’ way).

And yet, if the pursuit of maximum employment is an uncontroversial aim in the context of American oratory, it is a radical one in the context of U.S. policy. For the bulk of the past four decades, our government hasn’t merely declined to achieve full employment through public hiring; it has actively sought to keep millions of Americans perpetually unemployed.

This bipartisan consensus against full employment was rarely articulated to the public in forthright terms. During the crisis that consolidated the paradigm, policy-makers were sometimes blunt; in 1979, Fed chair Paul Volcker told Congress that in order for inflation to be brought down to a tolerable level, “the standard of living of the average American has to decline.” But as inflation became more of a historical memory than a present danger, the government’s prioritization of price stability over employment became increasingly camouflaged behind the dry technocratic verbiage of central-bank press conferences. Once decoded, the gist of this new consensus was simple enough: If unemployment falls beneath its “natural” threshold, then employers will be forced into a bidding war for scarce workers, who will then secure wages in excess of their productivity, which will force businesses to raise prices, which will lead workers to demand yet-higher wages, which will force businesses to raise prices further still, thereby setting off an inflationary spiral that will be difficult to stop. Thus, to save the economy from such destabilization, the government has to reduce economic demand — by raising interest rates, or cutting federal spending, or both — before unemployment gets too low, even if inflation is not yet apparent.

This official narrative obscured the class interests implicated by the government’s prioritization of low inflation over plentiful jobs. America’s wealthy have a greater material interest in price stability than they do in full employment; moderate inflation erodes the value of their bonds and cash holdings, while moderate unemployment has little adverse impact on their finances — and may even increase the value of their stocks by suppressing labor’s bargaining power. The bulk of U.S. workers, on the other hand, have a much greater interest in abundant jobs than ultralow prices. In a full-employment economy — where firms must compete for scarce labor — employers will be more likely to offer opportunities to “low skill” workers, on-the-job training to inexperienced ones, accommodations to the partially disabled, and wage increases to all. Nevertheless, policy-makers spent the bulk of the past 40 years preventing that economy from coming into being. In fact, as recently as 2015, the Fed treated preempting the mere risk of modest inflation as a higher priority than the achievement of an unemployment rate below 5 percent.

Then the old consensus broke down. Years of progressive lobbying — and sluggish growth — finally persuaded Jerome Powell’s Fed to hold off on raising interest rates until there was actual evidence of inflation. Donald Trump blunted Republican opposition to this shift by cheerleading for low interest rates (a monetary-policy preference that derived from his background in real estate). Then COVID hit, and U.S. fiscal policy underwent a mini-revolution.

By the time Joe Biden took office, Congress had already supplied the economy with roughly $3 trillion in fiscal support. That unprecedented stimulus had left U.S. households $12 trillion richer than they had been before the pandemic. Which is to say: The median American family was in better financial shape in January 2021 than it had been at the peak of the Trump “boom.” The economy was already recovering, and vaccines were about to be distributed. And yet Democrats passed another $1.9 trillion stimulus anyway — in the name of accelerating the return of full employment.

Last week in Cleveland, the president made the case for this macroeconomic policy in unusually stark terms:

My sole measure of economic success is how working families are doing, whether they have jobs that deliver dignity. That means we have to focus on wages like we used to. When it comes to the economy, rebuilding rising wages aren’t a bug. They’re a feature. We want to get something that economists call full employment. Instead of workers competing with each other for jobs that are scarce, we want employers to compete with each other to attract work. We want the companies to compete to attract workers. That kind of competition in the market doesn’t just give workers more ability to earn a higher wage. It gives them the power to demand to be treated with dignity and respect in the workplace.

Biden’s speech was remarkable for its acknowledgment of full employment’s class implications: When jobs are plentiful, workers get leverage over bosses — which is a good thing, since workers cannot reliably secure “dignity and respect in the workplace” unless they have some material power over their employers.

This was especially notable in light of the speech’s context. In recent weeks, lamentations of a “labor shortage” have filled the business press, while multiple Obama-administration economists have sounded alarms over inflation. The president’s remarks serve as a tacit rebuke to both of those criticisms. Biden suggests that a scarcity of labor isn’t a blight to be avoided, but a goal to be pursued (after all, a synonym for “labor shortage” is “a dearth of involuntarily unemployed people”). And he also signaled an allegiance to full employment and wage growth over the minimization of inflationary risk.

America remains a long way away from full employment, of course. But Democrats’ extension of $300 weekly federal unemployment benefits through September — combined with the savings that past relief checks have helped U.S. households accumulate — has given the nation a preview of how an economy that provides “jobs for all who want them” would operate.

And not everyone likes it.

As the New York Times reports:

Even workers with less formal education, who have experienced the worst job losses and still face high unemployment rates, have seen pay accelerate this year as economies reopen and employers struggle to hire … Reports of labor shortages in service jobs that are newly reopening abound, and surveys show businesses and consumers becoming more confident that employee earnings will increase. Job openings have been surging, and the rate at which workers are quitting suggests that they have some room to be choosy.

Many employers, particularly in hospitality, have blamed generous unemployment benefits — now set at an extra $300 per week — for encouraging workers to stay home and making it harder for them to hire. More than 20 states, all led by Republican governors, have moved to cut off pandemic unemployment programs before their scheduled September end date.

Republicans have warned that as employers lift pay to attract scarce workers, they may be forced out of business or pass along added labor costs in the form of higher prices.

Note: The fundamental complaint from both Republicans and employers here is not that unemployment benefits are too generous, but that labor is too scarce. Federal unemployment benefits might be causing that scarcity today. But abundant jobs would cause such scarcity by definition. The actual policy position that Republicans and business owners are endorsing, however tacitly, is that employment opportunities must be restricted so that cheap labor is always easy to find.

Which sounds a bit scandalous. In a democratic society, in which a large majority of the public works for a living, politicians generally don’t declare themselves hostile to the goal of plentiful employment. But a numerically significant, and disproportionately powerful, segment of Americans are hostile to that objective, even if they don’t know it yet.

America hasn’t seen anything approaching full employment in two decades. In the wake of the 2008 crisis — and the low-wage recovery that followed — multibillion-dollar companies like Uber were built atop the presumption that there would always be a large population of workers desperate for irregular, ill-paid employment. Countless small businesses — whose profit margins depend on low wage rates — came into being. And millions of upper-middle-class consumers became accustomed to various services whose affordability was contingent on the hyperexploitability of those who provided them. Last year, one-quarter of American workers earned less than two-thirds of the nation’s median wage. In no other developed country was the share of “low wage” workers so high.

Transitioning from an economy in which workers compete for employment — to one in which employers compete for workers — is a more radical change than Biden cares to admit. If workers win high wages and “dignity in the workplace,” many low-road, low-productivity employers will go out of business, and some middle-class consumers will have to go out less. Which isn’t to say that workers’ gains will be zero sum. A high-wage economy will also be one replete with demand for businesses that don’t depend on cheap labor to make ends meet. And it will also encourage more investment in automation and thus advances in productivity.

But to deliver us to that economy, Biden and the Fed will need to weather escalating pushback from those who were well served by the old, anti-full-employment consensus. To bring exploitation down to a tolerable level, the standard of living of the average rentier will have to decline.

Letting the Economy Create Jobs for All Is (Sadly) Radical