Evan Vucci/AP Photo
President Joe Biden responds to questions from reporters after speaking about the September jobs report in the Roosevelt Room of the White House, October 6, 2023, in Washington.
The American labor market seemingly will not quit, no matter how many times the Federal Reserve wallops it with the frying pan of raised interest rates. The September employment survey recently reported 336,000 new jobs, far above expectations.
Lefty economists have termed the combination of President Biden’s American Rescue Plan and the pandemic rescue packages that preceded him (almost entirely designed by Democrats) as “Big Fiscal,” and it has led to the fastest economic recovery since the wartime spending of the 1940s.
The full employment created by Big Fiscal has led to a debate among progressives about what to make of the Biden economy. One faction argues that Biden has done little about inflation, rising rents and home prices, and other problems, which is why he gets poor marks in polls about the economy. Others argue that the Biden economy is quite good relative to most of the last 20 years.
In my view, all should be able to agree about one thing at least: The low unemployment of the last couple of years has been very good.
Now, let me admit up front that the naysayers are right to say there are a great many aspects of economic life that a job by itself does not touch. Large fractions of the population are made up of categories of people who cannot, should not, or struggle to work, like children, students, disabled, or elderly folks. This is why only about half the population is working at any one time, and why it is so important to build a welfare state to provide income to all those nonworkers, especially as prices rise. It is also why Joe Manchin killing the expanded Child Tax Credit was such a tragedy.
Similarly, creating jobs will not by itself solve the crisis of housing affordability in many cities, or the broken health care system, or the burden of student debt, though it can help individuals deal with all three problems.
However, full employment is still hugely beneficial for several reasons. First is that the people who need jobs the most—the long-term unemployed, ex-convicts, high school dropouts, and so on, populations that by and large are disproportionately nonwhite—are typically the very last people to be hired. Big Fiscal has meant driving the employment rate among prime-age workers up to 80.9 percent, the highest level in more than 20 years and the second-highest rate in American history.
As Michael Harrington points out in his book The Other America, unemployment represents more than just a loss of income. It is also a loss in status, dignity, and self-respect. It is not a coincidence that the Rust Belt regions hit worst by deindustrialization also tend to be ground zero for opioid overdoses, alcoholism, crime, and other social ills, as well as attractions to fearmongering around social issues and demagogues who promise to solve everything.
Second and relatedly, running a red-hot labor market cuts income inequality. At Politico, Victoria Guida demonstrates that between 2020 and 2022, the 10th percentile of workers (that is, if we divided workers up into 100 groups by income, and examined the tenth group) got inflation-adjusted wage increases of 5.7 percent, while 90th-percentile workers saw a pay cut of 5 percent. This naturally cut income inequality—economists David Autor, Arindrajit Dube, and Annie McGrew estimate that fully a quarter of the increase in inequality relative to 1980 has been reversed over that period.
Big Fiscal has meant driving the employment rate among prime-age workers up to 80.9 percent, the highest level in more than 20 years and the second-highest rate in American history.
The reason for this is that full employment transforms the character of the labor market in a highly welcome fashion. When unemployment is high, jobs are scarce, and people at the bottom of the social ladder have no choice but to accept whatever terrible wages and working conditions are on offer. But when unemployment is low, jobs are plentiful, and workers gain the ability to demand more, or quit to find a better job. Employers offering difficult, unpleasant, poorly paid jobs, like restaurant and hospitality work, suddenly had to offer huge raises to fill positions.
The racial dimension of this deserves special attention. In normal times, the Black unemployment rate is reliably about twice that of whites. But thanks to this strong labor market, that is no longer true, as Black unemployment has fallen to its lowest level on record, along with the smallest Black-white unemployment gap on record. The ultrahot economy of the Second World War saw even faster convergence between racial groups. Full employment, in short, is powerfully anti-racist.
Third, full employment is good for unions. When wages are rising and labor is scarce, the confidence of workers to risk employer backlash by organizing a union or calling a strike grows. It’s not a coincidence that the last couple of years have seen the most militant union actions in decades—just possibly marking a turning point in labor’s long membership decline.
Some skeptics of Bidenomics have correctly pointed out that the effects of a tight labor market are temporary. The labor market has already softened quite a lot relative to 2022, particularly on wages, and a recession will come sooner or later. But if the labor movement can seize on these few years of strength to get unions up off their backs, then they will be able to lock in much of the higher wages and better benefits with contracts. Indeed, just last Friday, UAW President Shawn Fain announced that General Motors had agreed to put its new battery factories under its master union contract.
As an aside, let me emphasize that I am not praising work in and of itself here. On the contrary, as I argued in a paper for the People’s Policy Project, Americans on average work far too much relative to our vast wealth. We are crying out for a great expansion in mandatory vacation, public holidays, a shorter working week, and so on. But such a goal does not trade off with the benefits of full employment. On the contrary, by cutting labor supply among the already-employed, leisure policy will drive structural labor demand into the least-employed demographics. There should be a plentiful supply of jobs for everyone who wants to work, and those jobs should come with plenty of time off.
At any rate, I will have to admit that I have a personal stake in this debate. Back when the American Rescue Plan was being debated, I argued against Larry Summers’s notion that its size should be slashed because it might cause inflation. I said the balance of risks was not even close—on the one hand a continuation of the economic lost decade of the 2010s, but on the other some inflation that would cause only moderate pain. Inflation did come—and while I don’t believe Summers was right about the causes, which were more about the pandemic and the war in Ukraine than Big Fiscal, it did turn out to be quite unpopular.
Perhaps I was glib about the political risk of prices going up. But I think my moral ordering of risks was correct, and I think progressives should be wary of complaining too much about Bidenomics. If the 2023 economy is really so bad, then one logical conclusion would be that Summers was right, and the long-term unemployed should be sacrificed in service of price stability.
