Can We Do Better Than ‘Full Employment’?
“Full employment” sounds great and like something that is sure to benefit everyone. But suppose that, in practice and in general, despite an economy’s achieving full employment in some sense, somebody is going to suffer. How can that be? How can full employment be achieved at somebody’s expense? Here’s how.
Official and Commonsense Concepts of “Full Employment”
To see how, start with attempting to understand the official concepts of “full employment” and whatever ideals they represent. There are various accepted or proposed definitions; for example
– “the level of employment rates when there is no cyclical unemployment”, i.e., when there is no unemployment caused by recurrent swings in the aggregate demand for workers (the standard macroeconomic definition)—One problem with this is that it presupposes a definition of “unemployment”, so it is virtually a circular definition.
– “the absence of involuntary unemployment” (attributed to John Maynard Keynes)—Same problem of circularity.
– “occurs when the economy is producing to its maximum sustainable capacity, using labour, technology, land, capital and other factors of production to their fullest potential” (the OECD definition)—This is problematic to the extent that figuring out what the maximum sustainable capacity and fullest potential of an economy are is nearly impossible, especially given the ever-present potential for innovation that can increase that maximum within every economy.
– “a situation in which all available labor resources are being used in the most economically efficient way” (Investopedia.com)—Pray tell how we actually determine, let alone precisely quantify, “the most economically efficient way”.
More broadly stated, the main problem that all of these definitions have is that they are vague or circular, not at all quantitative and—given the practical impossibility of determining and measuring “maximum sustainable capacity”, “fullest potential” and “most economically efficient way” relative to an entire economy’s resources—are all more or less useless for setting employment targets, determining an “acceptable” level of unemployment or meaningfully measuring unemployment levels.
So, instead, consider what “full employment” means in commonsensical terms (especially in light of the peculiarly non-commonsensical, yet entrenched official econometric idea that 4% unemployment is full employment—the subject of a separate, upcoming article, touched upon below): From the standpoint of basic common sense, either “full employment” means that
- everyone who wants a job gets one
- everyone who has a job to offer fills it
- both of the above
The first thing to take note of is the obvious fact that “everyone who wants a job gets one” does not guarantee that “everyone who has a job to offer fills it” (nor vice versa). Half of this disparity follows immediately from another definition of “full employment”—the definition offered by Sir William Beveridge, the WW II-era UK employment guru and author of Full Employment in a Free Society. As he conceptualized it, full employment amounts to the situation in which there are slightly more job vacancies than there are people looking to fill them. Hence, so conceived, full employment means unmet, unsatisfied employer demand and less than full achievement of an economy’s “fullest potential” (since additional immigrants could fill those vacant jobs, especially if neither total is very large).
The hiring of every available worker under conditions of full employment conceived like this will still leave some jobs unfilled (in boom times), which hurts employers; on the other hand and in some all-too-familiar circumstances, filling every job will still leave many unemployed (bust times), which hurts job-seekers. Either way, such single-criteria conceptualizations (like #1 and #2, above) of full employment leave somebody hurting.
Unfortunately, most recruiters, especially in-house HR staff, whose jobs are defined by this difference between employer pain and job-seeker pain, are forced to respect it and to make their priority the task of ensuring that the client company (or companies) with jobs to offer can fill them. Think of clients as being like passengers on the Titanic: Fill their lifeboats and their jobs first.
Privately, recruiters may hope for the ideal—no supply or demand job or worker surplus, and huge amounts of both jobs and workers; however, in practice, they have to keep it real, and, in keeping their eye on the target of filling the available jobs, take whatever moral or emotional satisfaction they can in the wisdom of “one job-one employee, one at a time”, i.e., to fill the former is to hire the latter, even if only one at a time. In a weak economy, that’s the only comfort available.
Job-Seekers vs. Job-Holders
Moreover, “full employment” should not mean that the number of job-seekers equals the number of job openings. Despite equal numbers of jobs and job-seekers, substantial unemployment can persist in a number of ways, including through so-called “structural unemployment”, namely, unemployment caused by defects in the structure of the economy and job market—including skills-jobs mismatches and missing infrastructure, such as roads, that would connect workers isolated from jobs. Hence, even though the number of those looking are matched by the number of available jobs, these structurally excluded job-hunters may not find and get those jobs.
(On the other hand, and alternatively, could “full employment” possibly mean “the number of job-holders, i.e., employees, equals the number of jobs”? Obviously not, except as a useless truism, like “X is X”, since, in this instance, “jobs” has to mean “jobs accepted” or “jobs employees already have or can try to switch to if they are looking”. Every recruiter and economist knows or should know that.)
Other “Hidden Unemployment”
Unemployment can also persist, even though the number of job-seekers equals the number of jobs offered, through what is called “frictional unemployment”—failure to find and fill a job because the between-jobs job-seeker is unavailable, e.g., is migrating in search of a job elsewhere, perhaps after having lost his last job, last home and all but the last of his hope.
Then, too, further exposing the good-news illusion of a job-seeker-job-openings balance, there is the tricky business of discounting those who have simply given up looking for work and have had their unemployment benefits expire, or those who are otherwise among those experiencing other forms of what is termed “hidden unemployment”, in the form of working less than desired or at less than desirable jobs, relative to their qualifications (“underemployment”).
If, instead of giving up, they are migrating to find a job, they might still be considered the “frictionally unemployed”. Or, if their skill sets are obsolete or not otherwise in demand, they could be considered “structurally unemployed”—if they still have not given up.
But if, in utter desperation and resignation, the jobless are merely looking for a new highway underpass, a tent city or other infrastructure to call home, they technically, cunningly and officially are no longer considered to be “participating in the labor force”. Accordingly, in shifting from unemployment to non-employment, these hapless hopeless job-market dropouts, by becoming statistically invisible job-market spectators, nudge the economy toward statistical “full employment” through their non-participation and search for non-homes.
(The foregoing are the kinds of considerations that underlie the prima facie odd idea that “full employment” implies, as Beveridge and other experts suggest, some degree of unemployment as an “acceptable level of natural unemployment above 0%” that allows for unavoidable hidden unemployment, such as structural and frictional unemployment.)
Historically Awful Stability
In the worst case scenario, the numbers of job-seekers and available jobs are in perfect equilibrium and balance, but only because there are so few of either, e.g., in an utterly crushed economy, in which hopes, skills, investment and entrepreneurship have withered.
Remember, “equilibrium” means a “stable” (resistant to change), not “optimal” (best), state. Compare a bad marriage or psychotic delusion preserved at all costs—stable, but not optimal. To keep it within the domain of pure economics, recall the virtually zero persistent interest rates for loans during the Great Depression, when loan supply and demand—in terms of accepted, not offered, loans—were in perfect, stable but horrible equilibrium, with stagnant (“stable”) paralyzingly-low transaction levels.
The Third Way: Ideal?
Also note the obvious implication of the three “commonsense” definitions, #1-#3 above: the ideal is the situation in which the third situation obtains—“both of these are true”, i.e., the third concept, which blends the first two, and which expresses the utopian hope that not only will every worker who wants a job find one, but also that every employer who wants to fill a job will be able to. In other words, it’s the idea that full employment means perfect supply and demand equilibrium, but with the added, all-important proviso that there are neither surplus workers nor unfilled jobs.
It needs to be noted that not only is supply and demand job-worker equilibrium sometimes not a good thing, e.g., in the “withered” economy, also, it does not entail full employment, if only because, from a contractual standpoint, “supply” and “demand” can be construed to designate offers, not acceptance. On this interpretation “supply” and “demand” designate quantities that are merely offered (or sought). An economy in which the number of jobs offered perfectly matches the number of jobs sought can still stagnate and suffer if too many in the equation do not accept, e.g., employers unimpressed with their applicants, job-seekers unimpressed with the jobs. This reflects the elementary distinction in contract law between “offer” and “acceptance”.
With an emphasis on acceptance rather than offer, in the ideal case, “full employment” should mean that everyone who wants an acceptable job or an employee virtually instantly gets one or is happy to keep the one (s)he has.
What “Full Employment” Should Not Mean
Whatever “full employment” means, there are several things it should NOT mean:
- Job-seeker and job supply and demand equilibrium (the number of job-seekers offering their services/accepting a job equals the number of jobs offered/filled) is sufficient to define “full employment” as an optimal economic condition (recalling the low levels of both during the Great Depression).
- only that every job is filled
- only that every job-seeker has found a job
- Those who have given up looking for a job, those whose unemployment benefits have run out and those working far less or worse than their qualifications warrant are not really unemployed.
Can we do better than “full employment”? Given some of the accepted definitions of it, it appears we actually could, to the extent that too many of the concepts embody and endorse scenarios that represent less than the optimal circumstances “full employment” is commonsensically construed as suggesting.
In any case, using even more common sense, we certainly should be able to do a better job of defining it.