More Jobs Are the Antidote to InequalityEzra Klein
Dec. 19 (Bloomberg) -- Forget about the best books of 2013. As an early Christmas gift, I’m going to tell you how to get one of the most important books of 2014 -- for free. It’s “Getting Back to Full Employment: A Better Bargain for Working People,” by Dean Baker and Jared Bernstein. You can download it -- at no charge -- here. Ho ho ho!
The book claims to be about jobs. In truth, it’s about an even more important subject: power. In particular, it’s about the economic power of ordinary workers -- how they lost it, and how they can regain it.
“Full employment” means something very specific to economists. It’s the level of employment at which increased demand won’t result in more jobs -- just more inflation. The phrase’s meaning to working people is more vivid: It’s the level at which they have power to make demands of employers. We haven’t seen it in a long, long time.
There are two different trends visible in data on income inequality: the stagnating -- at times, declining -- wages of working-class families on one hand, and the awesome spike in the incomes of the top 1 percent on the other.
Both trends tell tales of power. Over the past four decades, the power of economic superstars has risen dramatically, enabling them to ply their trades internationally, negotiate enormous compensation packages with hand-picked boards of directors, and spend some of what they earn on political contributions -- often with the goal of making sure the Republican Party keeps their taxes low.
Meantime, average American workers have lost power. Their unions have been crushed, their jobs made easier to ship overseas, and their competition has expanded to include not only low-wage foreigners but, increasingly, robots. Their skills are slipping, their educations have been rendered inadequate by technological complexity, and they can no longer trust regulators to stop a super-empowered finance sector from detonating the global economy, throwing tens of millions out of work, in pursuit of profit.
Or so goes a typical narrative. Baker and Bernstein add an important wrinkle to this tale of woe. In recent decades, workers have been trapped in a slack labor market. Between 1949 and 1979, unemployment was typically beneath the measure (non-accelerating inflation rate of unemployment, known as NAIRU) economists use to mark when high wages associated with high employment become inflationary. Since 1980, it’s typically been well above it.
The two periods were markedly different for average workers. Prior to 1979, incomes grew at both the bottom and the top. Since 1980, incomes at the top have soared, while families in the bottom half of national income distribution have barely seen their incomes grow at all. Which makes sense: A slack labor market robs lower-skilled workers of their power because employers can easily replace them. Baker and Bernstein estimate that for families in the 20th percentile of income, “for each percentage point that the unemployment rate was closer to full employment, incomes grew 2.2 percent.”
That’s why full employment is a potentially powerful rallying point. “The largest group of beneficiaries of full employment is not the un- and underemployed,” Bernstein said in an interview. “It’s people with jobs. It creates enough pressure on the compensation system such that the bottom two-thirds of the workforce, for whom growth has been pretty much a spectator sport, get back in the game.”
Of course, no politician actively opposes full employment. What they oppose are policies that lead to it. Baker and Bernstein are particularly effective at exposing the economic assumptions that undermine full employment. Many are so commonplace they’re practically built right into the language of the political system.
“Inflation,” for instance, is a dirty word. But Baker and Bernstein argue convincingly that the Federal Reserve Bank’s focus on keeping inflation below 2 percent effectively sacrifices the other half of its dual mandate: full employment. Like policies that blunt inflation, policies designed to achieve full employment produce winners and losers. “Elevated unemployment doesn’t hurt those at the very top,” Bernstein said. “But higher inflation erodes their assets in ways that they would like to avoid -- and would be happy to trade off a point or two in unemployment to do so.”
That tradeoff between lower inflation and higher employment is almost never discussed. As it often happens, the terms of the debate have been set by those with wealth and power -- and a news media that too often reflects their concerns. Baker and Bernstein write that if the policy choice was better understood, “few would agree that it is appropriate to keep millions out of work and deny wage growth to tens of millions simply to reduce the risk of modestly higher inflation.” And if the Federal Reserve panicked over its failure to achieve full employment as it does about slight rises in inflation, we’d be living in a very different economy.
Public discourse about the deficit, of course, is another obvious example of elite preferences overwhelming broader interests. The political system is far more concerned about the threat of higher taxes later than joblessness now. Similarly, the prevailing language about the U.S.’s strong dollar policy, which is good for American owners and bad for American workers, is even more loaded: A policy that prizes exporting American goods is called “weak.”
Political power, which is one of the goods that economic power is used to purchase, matters greatly. But a debate focused simply on breaking down the political and economic power of the top 1 percent is woefully incomplete. “I think we should have campaign finance reform yesterday,” Bernstein said. “But would that quickly lift the bargaining power of the bottom half relative to a few points off the unemployment rate? Of course not.”
That’s why “full employment” is such an important concept right now. Inequality can be attacked in ways that do very little for average workers. By contrast, full employment gives average workers the power to demand a better deal from their employers and thus reduces inequality by giving the working class an overdue raise. For that reason, Baker and Bernstein’s book is at the top of my list for the coming year.
(Ezra Klein is a Bloomberg View columnist.)
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