Into the Pool

One concept that I hear a lot is that a 4% unemployment rate is "full employment." And I always wondered why that was, since one person out of every 25 not being able to find a job doesn't quite seem "full" to me. Today I did some digging, and came across the concept of "Non-Accelerating Inflation Rate of Unemployment," or "NAIRU." According to the Bureau of Labor Statistics: "Newer concepts of full employment require some unemployment to temper inflation," and that "some" is represented by the NAIRU, which comes out to be 4%. The logic is simple, once the unemployment rate starts to dip below the magic 4% number, workers start becoming hard enough to come by that employers are forced to increase pay in order to attract and retain workers, and those cost increases are promptly passed on to customers in the form of higher prices.

Straightforward enough. But it raised a question for me: If there must be a certain level of unemployment at all times, where unemployment is defined as people who want work, but can't get it, does this explain why the "safety net" in the United States is generally considered garbage? After all, social programs robust enough to mean that certain people didn't have to work in order to scrape by would mean that people could opt out of particularly nasty job markets, pushing things back towards an older understanding of "full employment," which was basically that the only people who weren't working were in the process of changing jobs.

It also gives a more economically sound (depending on one's understanding of economics) for seeking ways to push people into the labor pool than conceptualizations of "dignity" or concerns about "moral hazard." In situations where labor is scarce, workers have a decent number of options for putting pressure on businesses to shift some of the profitability of the business from shareholders to themselves. It would also, I expect, go some way towards eroding the idea of an "underclass." After all, work that wasn't valuable enough to entice people away from either benefits programs or other jobs would simply cease to exist, as happened here in the Seattle area a few years after I arrived. With technology companies hard up enough for workers that they were willing to train (in order to get around what it called "structural unemployment"), in addition to paying decent salaries, jobs that people took because they needed them tended to lose people. More than a few local restaurants closed because human resources people recruited away the wait staff during lunches. There was a local Burger King that resorted to offering $500 signing bonuses in order to attract applicants, and they likely had to slip some cash to the people they already had while they were at it.

Interestingly, despite the fact that the current unemployment rate is just about 4.2%, there doesn't seem to be much sign that the United States is on the verge of having prices take off in an effort to keep up with worker expectations of more money. Likely because of the fact that nearly a quarter of those people out of work, and looking, have been unemployed for longer than six months. (But it seems that the percentage of long-term unemployed can be inversely correlated with unemployment more generally; the number jumps when unemployment is low and drops like a stone when the broader unemployment rate climbs.) I know people who have been looking for a year and half at this point; mainly because the gaming sector is, as one person I know put it, a landfill fire, and the skillset doesn't exactly transfer over into other industries. I suspect that enough people are in "take what they can get" mode, that pushing up inflation is the last thing on their minds. So perhaps, as people were pointing out before the turn of the century, it's time to adopt a new way of thinking about the issue.