Employment Policy and Labor MarketsIn 2001, the US economy entered a seventh consecutive year of expansion and unemployment rates were at 30-year lows. Yet, not all shared in the employment boom. Levy Institute research has found that between 1995 and 1999, only 217,000 jobs—of the more than 13 million created—went to the half of the population holding a high school degree or less; the remaining jobs went to those with at least some college education. Today, in an ever-tightening economy, there are more than 16 million unemployed—10 percent of the labor force—and four job seekers for each available job. In addition, there are roughly 17 million full-time workers whose wages place them at or below the official poverty line. Clearly, there is room for improvement on the jobs front.
In response to this problem, Levy Institute scholars have proposed a full-employment, or job opportunity, program that would employ all who are willing to work and increase flexibility between economic sectors, thereby lowering the social and economic costs of unemployment. This program is preferable to proposed alternatives such as a reduction of the workweek or employment subsidies, neither of which is sure to raise employment—and both may have serious side effects. Other labor market policies studied by Levy Institute scholars include the effects of technology on earnings, and the effects of an increase in the minimum wage on hiring practices and earnings.
Book Series | April 2013
By Hyman P. Minsky | Preface by Dimitri B. Papadimitriou | Introduction by L. Randall WrayAlthough Hyman P. Minsky is best known for his ideas about financial instability, he was equally concerned with the question of how to create a stable economy that puts an end to poverty for all who are willing and able to work. This collection of Minsky’s writing spans almost three decades of his published and previously unpublished work on the necessity of combating poverty through full employment policies—through job creation, not welfare. Minsky was an American economist who studied under Joseph Schumpeter and Wassily Leontief. He taught economics at Washington University, the University of California–Berkeley, Brown University, and Harvard University. Minsky joined the Levy Economics Institute of Bard College as a distinguished scholar in 1990, where he continued his research and writing until a few months before his death in October 1996. His two seminal books were Stabilizing an Unstable Economy and John Maynard Keynes, both of which were reissued by the Levy Institute in 2008. Minsky held a B.S. in mathematics from the University of Chicago (1941) and an M.P.A. (1947) and a Ph.D. in economics (1954) from Harvard. He was a recipient in 1996 of the Veblen-Commons Award, given by the Association for Evolutionary Economics in recognition of his exemplary standards of scholarship, teaching, public service, and research in the field of evolutionary institutional economics.
This book was made possible in part through the generous support of the Ford Foundation and Andrew Sheng of the Fung Global Institute.
Published By: Levy Economics Institute of Bard College
In the Media | April 2013
By Dimitri B. PapadimitriouLos Angeles Times, April 5, 2013. All Rights Reserved.
The government can and should increase the deficit to return us to prosperity. Without such outlays we can’t get enough GDP growth to seriously attack unemployment.
Just before the congressional spring break, a Senate budget proposal to decrease, but not eliminate, the deficit over 10 years was denounced as “pro debt” by an Alabama senator. It was the kind of proud and loud anti-deficit rhetoric that, no matter how nonsensical, plays nicely into Washington group-think on the subject.
The deficit has arguably gained the distinction of being the single most widely misunderstood public policy issue in America. Just 6% (6!) of respondents in a recent poll correctly stated that it had been shrinking, which has in fact been the case for several years, while 10 times more, 62%, wrongly believed that it’s been getting bigger.
Despite prevailing notions in the capital and throughout the nation, those of us at the Levy Economics Institute—along with many other analysts and economists—have concluded that the deficit should be increased.
Why add to the deficit right now? Jobs. Our economic models clearly show that without increased government outlays we’ll be unable to generate enough GDP growth to seriously attack unemployment. If we tried to balance the budget through tax hikes, our still-recovering economy would be hurt. That leaves a temporarily bigger deficit as an important option.
A mutation in the link between growth and jobs makes the issue urgent. While we are seeing some economic growth, the unemployment rate is not responding as strongly to the gains as it did in the past.
This slow job growth—today’s “jobless recovery”—isn’t an outlier. It’s a phenomenon that has been increasing over the last three decades, with jobs coming back more and more slowly after a downturn, even when GDP is increasing. The weak employment response has been an almost straight-line trend for more than 30 years.
Our institute’s newest econometric models show that each 1% boost in the GDP today will create, roughly, only a third as much improvement to the unemployment rate as the same 1% rise did in the late 1970s.
Traditionally, we’ve assumed that GDP growth would be followed by an employment surge. The break in that link is now very clear. It’s especially worrisome this year, with only a small GDP rise universally anticipated.
The Federal Reserve, for one, just reduced its growth outlook to 2.8% at most for 2013. The shallow recovery we’re seeing may indeed continue through 2014 and beyond. Since employment now consistently lags well behind GDP, we’ll have a long slog before we reach pre-crisis unemployment levels (below 4.6%). Some Federal Reserve officials believe it might take three years just to get from today’s 7.7% down to 6.5%. Full employment would still be nowhere in sight.
The quantitative data are telling us that without a stimulus, we can’t expect a strong employment lift. But instead of stimulus, we’re devising federal budgets that cut spending and lay off workers. The sequester is expected to depress GDP growth by perhaps half a percentage point—when we know that more growth than ever will be needed to raise employment—and cost anywhere from 700,000 to more than 1 million jobs.
Slower government spending is one reason that post-recession growth has been below par compared with other recoveries, Fed Vice Chair Janet Yellen has argued. As government outlays and employment have shrunk, the contribution of public funds to national growth has also fallen. By our estimates, that contribution now stands at about zero. That’s another data point indicating that federal deficits need to be increased.
To better understand the changing relationship between growth and jobs, the Levy Institute recently looked at three scenarios through 2016: what the results might be of a small, medium or large stimulus. A strong stimulus was clearly the most effective option, since it had a powerful, positive influence on employment growth and, in the long term, on deficit reduction. Of course, that route is completely unfeasible in the current political climate. But we saw that even a small amount of deficit spending could help put the recovery on track if it were combined with a mix of private investment, increased exports and good policy alternatives.
That points toward a way forward. Increasing the deficit while our economy is fragile is not “pro deficit,” any more than a family with a 30-year home mortgage is “pro debt.” To reclaim a phrase that deficit hawks have tried to make their own, it is “sensible and serious.” The federal government can run a deficit, as it almost always has, to help the nation return to prosperity.
With our new understanding of the fraying tie between GDP growth and jobs, we know that millions of Americans are on course for an agonizingly slow march out of joblessness unless we make a move. The nature of slumps and recoveries has changed, and the policies to manage them need to change too.
Dimitri B. Papadimitriou is president of the Levy Economics Institute of Bard College and executive vice president of Bard.