WEBVTT NOTE 26. "Full Employment" As The Goal 1 00:00:00.000 --> 00:00:09.000 Chapter 26, Full Employment as the Goal 2 00:00:09.000 --> 00:00:17.000 The contribution of Keynes that his disciples most often insist upon as valid and permanent 3 00:00:17.000 --> 00:00:23.000 is the substitution of full employment as the goal of economic activity 4 00:00:23.000 --> 00:00:28.000 rather than the maximum production of the classical economists. 5 00:00:28.000 --> 00:00:33.000 We shall ask here three main questions about full employment. 6 00:00:33.000 --> 00:00:36.000 1. Is it definable? 7 00:00:36.000 --> 00:00:39.000 2. Is it attainable? 8 00:00:39.000 --> 00:00:45.000 3. Is it, at all times and under all conditions, even desirable? 9 00:00:45.000 --> 00:00:49.000 Is it definable? 10 00:00:49.000 --> 00:00:54.000 Let us begin with the question of definition. 11 00:00:54.000 --> 00:01:09.000 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. 12 00:01:09.000 --> 00:01:15.000 This naive conception runs into immediate difficulties. 13 00:01:15.000 --> 00:01:24.000 Early in 1958, for example, the population of the United States was about 173 million. 14 00:01:24.000 --> 00:01:29.000 But there were only some 62 million employed. 15 00:01:29.000 --> 00:01:36.000 Therefore, there must have been 111 million unemployed. 16 00:01:36.000 --> 00:01:44.200 Yet the official estimate was that there was at that time only 5 million unemployed. 17 00:01:44.200 --> 00:01:50.680 For the government statisticians, the unemployed consist only of those in the labor force who 18 00:01:50.680 --> 00:01:53.160 are not employed. 19 00:01:53.160 --> 00:02:00.000 But just how was the line drawn between the 67.5 million who are counted as part of the 20 00:02:00.000 --> 00:02:06.520 of the Labor Force, and the 105.5 million who were not. 21 00:02:06.520 --> 00:02:13.240 Here is how the U.S. Bureau of the Census described how it decided. 22 00:02:13.240 --> 00:02:19.880 Monthly estimates of the population of working age 14 years and over, showing the total number 23 00:02:19.880 --> 00:02:26.040 employed, the total number unemployed, and the number not in the labor force are obtained 24 00:02:26.040 --> 00:02:34.600 from a scientifically selected sample of about 35,000 interviewed households in 330 areas 25 00:02:34.600 --> 00:02:36.920 throughout the country. 26 00:02:36.920 --> 00:02:44.080 So the estimate of unemployed was in large part based on a sample of only one in every 27 00:02:44.080 --> 00:02:48.200 1,400 households in the country. 28 00:02:48.200 --> 00:02:54.480 My purpose here, however, is not to emphasize the probable error in such estimates, but 29 00:02:54.480 --> 00:03:02.200 but to call attention to the necessarily arbitrary and, in some cases, purely subjective standards 30 00:03:02.200 --> 00:03:07.520 by which unemployment is officially determined. 31 00:03:07.520 --> 00:03:12.420 The Bureau of the Census's explanation continues. 32 00:03:12.420 --> 00:03:18.520 The unemployed total includes all jobless who are looking for work. 33 00:03:18.520 --> 00:03:22.700 How is the number of such persons estimated? 34 00:03:22.700 --> 00:03:25.820 Some Replies to the Interviews. 35 00:03:25.820 --> 00:03:30.300 What constitutes realistically looking for work? 36 00:03:30.300 --> 00:03:36.820 The interviewers must rely in large part upon the realism of the replies. 37 00:03:36.820 --> 00:03:46.060 The labor force is not even a constant percentage of the total non-institutional population. 38 00:03:46.060 --> 00:03:57.700 In July of 1957, it was 60.6%, but in December only 58.1%. 39 00:03:57.700 --> 00:04:01.120 Some paradoxical results emerge. 40 00:04:01.120 --> 00:04:09.220 The monthly report for March of 1958, for example, opened as follows. 41 00:04:09.220 --> 00:04:17.440 Employment rose by 300,000 between February and March, while unemployment was unchanged. 42 00:04:17.440 --> 00:04:19.440 How could that happen? 43 00:04:19.440 --> 00:04:27.160 The layman would naturally expect that if employment rose 300,000 in March, unemployment 44 00:04:27.160 --> 00:04:29.760 would have dropped that much. 45 00:04:29.760 --> 00:04:36.520 The government statistician's answer is that the labor force increased by that much. 46 00:04:36.520 --> 00:04:43.060 The labor force increases partly by census estimates of the population reaching working 47 00:04:43.060 --> 00:04:49.600 age, etc., but also partly by changes in people's decisions. 48 00:04:49.600 --> 00:04:57.360 Suppose a man has a good job with a wife at home and a son and daughter in college. 49 00:04:57.360 --> 00:05:04.700 He loses his job whereupon not only he but his wife, his son and his daughter start looking 50 00:05:04.700 --> 00:05:06.660 for Work. 51 00:05:06.660 --> 00:05:12.660 Because one person has lost his job, four persons are now unemployed. 52 00:05:12.660 --> 00:05:18.580 So unemployment goes up faster than employment goes down. 53 00:05:18.580 --> 00:05:24.900 Let's turn now to the explanations of the Department of Labor. 54 00:05:24.900 --> 00:05:32.420 Effective January 1957, persons on layoff with definite instructions to return to work 55 00:05:32.420 --> 00:05:39.740 within 30 days of layoff and persons waiting to start new wage and salary jobs within the 56 00:05:39.740 --> 00:05:44.800 following 30 days are classified as unemployed. 57 00:05:44.800 --> 00:05:49.660 Such persons had previously been classified as employed. 58 00:05:49.660 --> 00:05:57.200 The combined total of the group's changing classification has averaged about 200,000 59 00:05:57.200 --> 00:06:02.180 to 300,000 a month in recent years. 60 00:06:02.180 --> 00:06:11.260 So the unemployed increased by about a quarter of a million simply by a change of definition. 61 00:06:11.260 --> 00:06:17.100 We get into the same kind of problems and arbitrary decisions when we come to the matter 62 00:06:17.100 --> 00:06:19.060 of working hours. 63 00:06:19.060 --> 00:06:24.740 Obviously, there cannot be jobs for all the people all the time. 64 00:06:24.740 --> 00:06:30.360 We must deduct time for eating, sleeping, rest and leisure. 65 00:06:30.360 --> 00:06:32.460 But how much time? 66 00:06:32.460 --> 00:06:38.520 It is customary to think of men being partly unemployed when they are laid off for two 67 00:06:38.520 --> 00:06:41.120 working days a week. 68 00:06:41.120 --> 00:06:47.260 But obviously, they are as much unemployed if they work every day for correspondingly 69 00:06:47.260 --> 00:06:49.760 reduced hours. 70 00:06:49.760 --> 00:06:58.360 In the United States today, the standard full working week is 40 hours, or 5 8-hour days. 71 00:06:58.360 --> 00:07:04.520 This is shorter than the standard working week used to be, and in future it may be shorter 72 00:07:04.520 --> 00:07:05.920 still. 73 00:07:05.920 --> 00:07:12.520 Obviously, the length of the working week that constitutes full employment is also a 74 00:07:12.520 --> 00:07:17.360 matter of arbitrary and conventional definition. 75 00:07:17.360 --> 00:07:23.280 Let us see whether we can get some help from the academic economists and, first of all, 76 00:07:23.280 --> 00:07:25.940 of course, Keynes. 77 00:07:25.940 --> 00:07:32.100 In the general theory, Keynes gives us two definitions, neither of which seems to have 78 00:07:32.100 --> 00:07:35.100 much relation to the other. 79 00:07:35.100 --> 00:07:42.700 On page 15, he gives an involved definition of involuntary unemployment, which, as I have 80 00:07:42.700 --> 00:07:47.580 already tried to show, page 30, is invalid. 81 00:07:47.580 --> 00:07:55.880 From this, he postulates a state of affairs in the absence of involuntary unemployment. 82 00:07:55.880 --> 00:08:02.920 This state of affairs we shall describe as full employment, both frictional and voluntary 83 00:08:02.920 --> 00:08:08.320 unemployment being consistent with full employment thus defined. 84 00:08:08.320 --> 00:08:13.560 Page 16 In other words, full employment is a state 85 00:08:13.560 --> 00:08:19.680 in which there can be both frictional and voluntary unemployment. 86 00:08:19.680 --> 00:08:23.160 Full employment is not full. 87 00:08:23.160 --> 00:08:30.120 Let's start again, this time with the definition on page 303. 88 00:08:30.120 --> 00:08:36.320 We have full employment when output has risen to a level at which the marginal return from 89 00:08:36.320 --> 00:08:42.840 a representative unit of the factors of production has fallen to the minimum figure at which 90 00:08:42.840 --> 00:08:49.000 a quantity of the factors sufficient to produce this output is available. 91 00:08:49.000 --> 00:08:56.320 I confess I find it difficult to follow this jabberwocky, but I assume it implies that 92 00:08:56.320 --> 00:09:00.200 some sort of equilibrium has been reached. 93 00:09:00.200 --> 00:09:06.920 One is tempted to ask irreverently, does this mean that Uncle Oscar has a job? 94 00:09:06.920 --> 00:09:10.480 Let us turn to A. C. Pigot. 95 00:09:10.480 --> 00:09:18.800 Professor Pigot is aware of some of the difficulties we encounter when we try to define unemployment. 96 00:09:18.800 --> 00:09:27.760 A man is only unemployed when he is both not employed and also desires to be employed. 97 00:09:27.760 --> 00:09:35.760 Moreover, the notion of desiring to be employed must be interpreted in relation to established 98 00:09:35.760 --> 00:09:45.520 facts as regards, one, hours of work per day, two, rates of wage, and three, a man's state 99 00:09:45.520 --> 00:09:47.720 of health. 100 00:09:47.720 --> 00:09:54.760 This definition reveals that many subjective and arbitrary elements enter into the concept 101 00:09:54.760 --> 00:10:01.520 of unemployment, but we shall see presently that there are many more difficulties than 102 00:10:01.520 --> 00:10:05.760 even Pigot's definition allows for. 103 00:10:05.760 --> 00:10:10.720 After considerable discussion, Pigot ends up with the conclusion that, 104 00:10:10.720 --> 00:10:26.720 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. 105 00:10:26.720 --> 00:10:38.720 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 106 00:10:38.720 --> 00:10:46.580 But that the quantity of labor demanded and the number of unfilled vacancies are also 107 00:10:46.580 --> 00:10:53.800 largely subjective rather than objective, because they depend on the changing intentions 108 00:10:53.800 --> 00:10:55.800 of employers. 109 00:10:55.800 --> 00:11:03.000 If I could get a man to mow my lawn at a certain hourly rate, there would be an unfilled vacancy 110 00:11:03.000 --> 00:11:10.600 at that rate, but if the professional gardeners available all demand more, I may decide either 111 00:11:10.600 --> 00:11:15.920 to mow my lawn myself or to let it grow. 112 00:11:15.920 --> 00:11:19.560 This principle applies throughout history. 113 00:11:19.560 --> 00:11:25.760 Whether there are unfilled vacancies in a given firm may depend not only on the wage 114 00:11:25.760 --> 00:11:28.760 In another place, Pigot writes, 115 00:11:28.760 --> 00:11:53.760 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. 116 00:11:53.760 --> 00:12:09.760 In 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. 117 00:12:09.760 --> 00:12:19.320 All this looks extremely simple, but the difficulty of statistical quantification, or deciding 118 00:12:19.320 --> 00:12:27.260 precisely what the numerical relationship is of men available to jobs available, is 119 00:12:27.260 --> 00:12:34.560 precisely the difficulty of defining not only what is meant by men available, but what is 120 00:12:34.560 --> 00:12:40.240 is meant by a job, particularly when it is unfilled. 121 00:12:40.240 --> 00:12:43.440 Let us try Sir William Beveridge. 122 00:12:43.440 --> 00:12:49.920 In his Full Employment in a Free Society, he defines full employment in his opening 123 00:12:49.920 --> 00:12:56.440 pages as having always more vacant jobs than unemployed men. 124 00:12:56.440 --> 00:13:03.400 The labor market should always be a seller's market rather than a buyer's market. 125 00:13:03.400 --> 00:13:08.920 But this is obviously defining full employment as over-employment. 126 00:13:08.920 --> 00:13:16.520 Incidentally, Sir William's demand that there must always be more vacant jobs than unemployed 127 00:13:16.520 --> 00:13:22.120 men is a demand that labor should always be underpaid. 128 00:13:22.120 --> 00:13:28.240 For this condition could only exist if the marginal product of labor were higher than 129 00:13:28.240 --> 00:13:34.200 and its wage rate, and labor, though fully employed, would therefore be getting less 130 00:13:34.200 --> 00:13:38.240 than its full potential income. 131 00:13:38.240 --> 00:13:44.640 One of the most realistic discussions of the difficulties in the concept of full employment 132 00:13:44.640 --> 00:13:53.400 is that of Edwin G. Norse, formerly chairman of the President's Council of Economic Advisers. 133 00:13:53.400 --> 00:14:01.640 Quoting upon the Declaration of Policy in the American Employment Act of 1946, he writes, 134 00:14:01.640 --> 00:14:08.920 The phrase, those able, willing and seeking to work, does not define a labor force for 135 00:14:08.920 --> 00:14:17.200 whose optimum utilization the Federal Government can, in good economic conscience, pledge itself 136 00:14:17.200 --> 00:14:22.360 to utilize all its plants, functions and resources. 137 00:14:22.360 --> 00:14:29.640 In the absence of objective criteria, the word able becomes practically meaningless. 138 00:14:29.640 --> 00:14:37.040 Whether a given person is, in a commercial or industrial sense, able to work, is a decidedly 139 00:14:37.040 --> 00:14:39.320 relative matter. 140 00:14:39.320 --> 00:14:43.520 Able to work steadily or only intermittently. 141 00:14:43.520 --> 00:14:50.320 At the kinds of work for which demand presently exists, only with other skills or without 142 00:15:20.320 --> 00:15:26.660 Authoritarianism might be getting his nose under the tent of free enterprise. 143 00:15:26.660 --> 00:15:33.400 But does it mean willing to work at such jobs as are available or only at the job of one's 144 00:15:33.400 --> 00:15:34.840 dreams? 145 00:15:34.840 --> 00:15:42.420 Willing to work on a time schedule dictated by employer's needs or by worker's convenience? 146 00:15:42.420 --> 00:15:49.500 Seeking is of necessity the criterion relied on by the Census Bureau in giving us a monthly 147 00:15:49.500 --> 00:15:53.500 Estimate of Involuntary Unemployment. 148 00:15:53.500 --> 00:16:00.780 But wanting would be a more apt term for our purpose since it is a commonplace in the experience 149 00:16:00.780 --> 00:16:07.340 of all who have dealt with the unemployed to find not a few persons who want work, may 150 00:16:07.340 --> 00:16:13.760 even need it desperately, and who yet are not actively seeking a job because they have 151 00:16:13.760 --> 00:16:18.420 become convinced that the search is hopeless. 152 00:16:18.420 --> 00:16:25.100 The plain fact is that the size of our labor force is statistically determinate only within 153 00:16:25.100 --> 00:16:30.380 the limits of quite categorical definitions. 154 00:16:30.380 --> 00:16:36.220 When we speak of full employment, therefore, we would do better to use the term not as 155 00:16:36.220 --> 00:16:42.820 the Keynesian zealots use it, and not with any effort at an unattainable mathematical 156 00:16:42.820 --> 00:17:10.820 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. 157 00:17:10.820 --> 00:17:28.820 This 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. 158 00:17:28.820 --> 00:17:32.820 Is it attainable? 159 00:17:32.820 --> 00:17:36.820 Is full employment attainable? 160 00:17:36.820 --> 00:17:41.820 Here, even those who favor the goal begin to waver. 161 00:17:41.820 --> 00:17:50.220 Alvin Hansen, in his definition of full employment in Economic Policy and Full Employment, declares 162 00:17:50.220 --> 00:17:51.220 that 163 00:17:51.220 --> 00:17:58.980 In an economy as large as that of the United States, it is probable that at full employment 164 00:17:58.980 --> 00:18:06.580 there would be at any one time between two and three million temporarily unemployed. 165 00:18:06.580 --> 00:18:18.100 4.5% of the civilian labor force of 1945-47. Paul Douglas, commenting on Beveridge's use 166 00:18:18.100 --> 00:18:25.900 of a 3% margin for seasonal and transitional unemployment, declared that such a criterion 167 00:18:25.900 --> 00:18:33.780 would be fatal in the United States. To use deficit financing to drive unemployment down 168 00:18:33.780 --> 00:19:03.340 So, when full employment is seriously discussed, it turns out to be less than full employment. 169 00:19:03.340 --> 00:19:11.980 And the desirability of full employment at whatever cost is gravely questioned. 170 00:19:11.980 --> 00:19:18.820 Lionel Robbins, quoting the beverage definition of full employment as having always more vacant 171 00:19:18.820 --> 00:19:26.020 jobs than unemployed men, points out that a state of affairs in which at current rates 172 00:19:26.020 --> 00:19:32.520 of wages the demand for labor is continually greater than the supply must be a state of 173 00:19:32.520 --> 00:19:38.920 of Affairs in which, in the absence of special restraints, the level of wage rates and hence 174 00:19:38.920 --> 00:19:43.640 the level of prices is tending continually to rise. 175 00:19:43.640 --> 00:19:51.640 He goes on to point out that even a full employment policy that tried to guarantee a mere equality 176 00:19:51.640 --> 00:19:58.540 of jobs and applicants would have to guarantee the trade unions that whatever wage rates 177 00:19:58.540 --> 00:20:28.020 Edwin Norse, in the article from which I have previously quoted, declares that, 178 00:20:28.020 --> 00:20:35.700 Ideally full employment would be such as promotes continuous maximization of production and 179 00:20:35.700 --> 00:20:39.500 real purchasing power for the people. 180 00:20:39.500 --> 00:20:47.240 But this definition recognizes that full employment is desirable not as an end in itself, but 181 00:20:47.240 --> 00:20:51.200 only as a means to much broader ends. 182 00:20:51.200 --> 00:20:58.000 Even the maximization of production must be understood, not in the sense of the mere piling 183 00:20:58.000 --> 00:21:24.760 If we are talking not of unavoidable means but of desired ends, then we must recognize 184 00:21:24.760 --> 00:21:31.240 that the economic objective of mankind is not more work but less. 185 00:21:31.240 --> 00:21:38.080 I hope I may be forgiven for quoting what I have written in another place. 186 00:21:38.080 --> 00:21:44.540 The economic goal of any nation as of any individual is to get the greatest results 187 00:21:44.540 --> 00:21:46.780 with the least effort. 188 00:21:46.780 --> 00:21:53.200 The whole economic progress of mankind has consisted in getting more production with 189 00:21:53.200 --> 00:21:55.280 with the same labor. 190 00:21:55.280 --> 00:22:01.440 It is for this reason that men began putting burdens on the backs of mules instead of on 191 00:22:01.440 --> 00:22:07.680 their own, that they went on to invent the wheel and the wagon, the railroad and the 192 00:22:07.680 --> 00:22:09.400 motor-truck. 193 00:22:09.400 --> 00:22:16.200 It is for this reason that men used their ingenuity to develop a hundred thousand labor-saving 194 00:22:16.200 --> 00:22:17.880 inventions. 195 00:22:17.880 --> 00:22:24.000 All this is so elementary that one would blush to state it if it were not being constantly 196 00:22:24.000 --> 00:22:30.080 forgotten by those who coin and circulate the new slogans. 197 00:22:30.080 --> 00:22:35.460 Translated into national terms, the first principle means that our real objective is 198 00:22:35.460 --> 00:22:38.040 to maximize production. 199 00:22:38.040 --> 00:22:44.740 In doing this, full employment, that is, the absence of involuntary idleness, becomes a 200 00:22:44.740 --> 00:22:52.180 a Necessary By-Product, but production is the end, employment merely the means. 201 00:22:52.180 --> 00:23:00.180 We cannot continuously have the fullest production without full employment, but we can very easily 202 00:23:00.180 --> 00:23:05.900 have full employment without full production. 203 00:23:05.900 --> 00:23:11.340 Primitive tribes are naked and wretchedly fed and housed, but they do not suffer from 204 00:23:11.340 --> 00:23:13.780 unemployment. 205 00:23:13.780 --> 00:23:19.620 India and India are incomparably poorer than ourselves, but the main trouble from which 206 00:23:19.620 --> 00:23:26.020 they suffer is primitive production methods, which are both a cause and a consequence of 207 00:23:26.020 --> 00:23:30.720 a shortage of capital, and not unemployment. 208 00:23:30.720 --> 00:23:36.440 Nothing is easier to achieve than full employment, once it is divorced from the goal of full 209 00:23:36.440 --> 00:23:41.320 production and taken as an end in itself. 210 00:23:41.320 --> 00:23:46.040 The labor provided full employment with a huge armament program. 211 00:23:46.040 --> 00:23:51.260 The war provided full employment for every nation involved. 212 00:23:51.260 --> 00:23:56.080 The slave labor in Russia had full employment. 213 00:23:56.080 --> 00:24:00.240 Prisons and chain gangs have full employment. 214 00:24:00.240 --> 00:24:04.000 Coercion can always provide full employment. 215 00:24:04.000 --> 00:24:11.360 The progress of civilization has meant the reduction of employment, not its increase. 216 00:24:11.360 --> 00:24:17.520 It is because we have become increasingly wealthy as a nation that we have been able 217 00:24:17.520 --> 00:24:24.880 virtually to eliminate child labor, to remove the necessity of work for many of the aged, 218 00:24:24.880 --> 00:24:29.200 and to make it unnecessary for millions of women to take jobs.