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Minimum Level of Unemployment and Public Policy Upjohn Press Upjohn Research home page 1-1-1980 Minimum Level of Unemployment and Public Policy Frank Cook Pierson Swarthmore College Follow this and additional works at: https://research.upjohn.org/up_press Part of the Labor Economics Commons, and the Public Policy Commons Citation Pierson, Frank C. 1980. Minimum Level of Unemployment and Public Policy. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. https://doi.org/10.17848/9780880995832 This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 4.0 License. This title is brought to you by the Upjohn Institute. For more information, please contact [email protected]. Theo o _ _ LevdLof Unemployment and Riblic Iblicy Frank C» Herson The©O O _ TLeveLof Unemployment and ftibliclbliey Frank C. Pierson Swarthmore College THE W.E. UPJOHN INSTITUTE FOR EMPLOYMENT RESEARCH Library of Congress Cataloging in Publication Data Pierson, Frank Cook, 1911- The minimum level of unemployment and public policy. 1. Unemployment United States. 2. United States Full employment policies. I. Title. HD5724.P475 339.5©0973 80-26536 ISBN 0-911558-76-4 ISBN 0-911558-75-6 (pbk.) Copyright 1980 by the W. E. UPJOHN INSTITUTE FOR EMPLOYMENT RESEARCH 300 South Westnedge Ave. Kalamazoo, Michigan 49007 THE INSTITUTE, a nonprofit research organization, was established on July 1, 1945. It is an activity of the W. E. Upjohn Unemployment Trustee Corporation, which was formed in 1932 to administer a fund set aside by the late Dr. W. E. Upjohn for the purpose of carrying on "research into the causes and effects of unemployment and measures for the alleviation of unemployment." The Board of Trustees of the W. E. Upjohn Unemployment Trustee Corporation Preston S. Parish, Chairman Mrs. Ray T. Parfet, Vice Chairman Charles C. Gibbons, Vice Chairman D. Gordon Knapp, Secretary-Treasurer E. Gifford Upjohn, M.D. Mrs. Genevieve U. Gilmore James H. Duncan John T. Bernhard The Staff of the Institute E. Earl Wright, Director Saul J. Blaustein Judith K. Drawer Phyllis Buskirk H. Allan Hunt John R. Mekemson Car la J. Noe Jo Bentley Reece Robert A. Straits Wayne R. Wendling Jack R. Woods in The Author Professor Pierson has devoted most of his professional career to teaching and research work in the labor field, along with various government and arbitration assignments in the same area. He joined the Economics Department of Swarth- more College in 1940, served as Vice-Chairman of the Third Regional War Labor Board during World War II, subse quently was a research associate at various universities and institutes and was active both as an arbitrator in private in dustry and as a consultant to several government agencies. He is Joseph Wharton Professor Emeritus of Political Economy at Swarthmore College. He is the author of a variety of studies in the labor and manpower field including Community Wage Patterns, 1952; New Concepts in Wage Determination (co-editor), 1957; The Education of American Businessmen (with others), 1959; and Community Manpower Training Programs for the Disadvantaged, 1972. IV Foreword While the problem of cyclical joblessness dominates public policy discussion at the present time, structural unemploy ment is being increasingly recognized as one of the nation©s most serious domestic problems. Persistent high levels of "prosperity" or structural unemployment are attributable to seemingly intractable structural imbalances within the economy. As Professor Pierson notes, the key policy prob lem centers on the use of aggregative and structural policies to reduce total unemployment to the 4-5 percent range and to bring the hard-to-employ into the economic mainstream without inducing increased inflation. This study focuses on the role of the federal government in reducing persistent joblessness that prevails at relatively high levels even during periods of high employment or prosperity. Professor Pierson concludes that, while differing in degree, both cyclical and structural unemployment should be ad dressed in periods of high as in periods of low employment. The author concludes that the most critical issue to resolve is how to balance short-run and long-run goals for the economy in the selection of public policy alternatives. Facts and observations expressed in the study are the sole responsibility of the author. His viewpoints do not necessar ily represent positions of the W.E. Upjohn Institute for Employment Research. E. Earl Wright Director Kalamazoo, Michigan November 1980 Contents Foreword....................................... v Chapter 1 Dimensions of the Problem............ 1 Chapter 2 The Shifting Limits of Demand Management................. 13 Chapter 3 Reducing Frictional and Seasonal Unemployment............... 29 Chapter 4 Reducing Structural Unemployment..... 53 Chapter 5 Noncompetitive and Work Disincentive Barriers............. 71 Chapter 6 Discriminatory Employment Barriers.... 97 Chapter 7 Strengthening Educational Opportunities........................ 115 Chapter 8 Public Service Employment Programs... 137 Chapter 9 Government Training Programs........ 155 Chapter 10 Wage Subsidies and Employment (James R. Knickman, New York University). ... 171 Chapter 11 Conclusion .......................... 187 Vll Chapter 1 Dimensions of the Problem In the last decade, unemployment has again become one of the country©s most serious unresolved problems. Mass unemployment as it was known in the 1930s can perhaps no longer be considered a serious threat, an outcome for which Keynes and his followers deserve primary credit. The full employment prospect implicit in their doctrines, however, has faded. The broad consensus among economists today is that if reliance is placed on Keynesian macro-expansion policies alone, the jobless rate cannot be pushed below 5 per cent, perhaps not even below 6 percent, of the nation©s labor force without unleashing severe inflationary pressures. Compared to the Great Depression such projections hard ly appear alarming, but the economic and social repercus sions of even small changes in the jobless rate can be ex tremely serious. A rise in the jobless rate of one percentage point, say from 4 to 5 percent, would add about a million persons to the jobless rolls and, barring temporary offsets, would reduce real GNP by nearly 3 percent. More serious still, the kind of unemployment that persists into periods of general prosperity falls much more heavily on certain groups than on others: those with low incomes, few skills, and little education. In addition to the loss of their output, society must also bear the heavy direct and indirect costs of the add ed welfare expenditures, police protection, and 2 Dimensions of the Problem neighborhood deterioration associated with concentrated joblessness of this type. Most damaging of all, persons who cannot even find stable jobs in boom periods can hardly be blamed for becoming completely discouraged and defeatist about their personal worth as well as their role in the life of their communities. This study is primarily addressed to the problem of pros perity, as opposed to recessionary, unemployment. The former is attributable to persistent structural imbalances within the economy, the latter to either cyclical or longer term shortfalls in aggregate demand relative to aggregate supply in the economy as a whole. The distinction between structural and aggregate demand joblessness has admittedly become quite blurred since failure on either front greatly complicates effective action on the other. To the degree ag gregate imbalances prove intractable, structural imbalances will become more serious, and if the latter prove to be unyielding, the task of aggregate demand management becomes correspondingly more difficult. Parallel action on both fronts is, therefore, clearly required if success on either is to be achieved. Nevertheless, the corrective measures to be taken at the structural and aggregative level will differ radically. Prosperity Unemployment Controversy soon emerges when discussion of these two aspects of unemployment goes beyond the level of generalization. The crux of the question is how can ag gregative and structural policies be meshed so that unemployment can be brought down to the 4-5 percent range. The usual answer is that, on the aggregative level, the economy has become increasingly inflation prone and, on the structural level, larger sections of the nation©s labor force have become increasingly cut off from stable job or career Dimensions of the Problem 3 opportunities. The main purpose of this study is to assess the merits of this pessimistic but widely accepted view and, more particularly, to examine its implications for public policy. The pessimists© view has now become part of the conven tional wisdom, so much so that only the briefest summary is needed here. If, as recent experience attests, prices begin to rise sharply even when the unemployment rate is as high as 6 percent or more, the scope left to fiscal and monetary policy as a means for reducing unemployment will be sharply reduced. Indeed, to the extent serious inflation has become permanent and essentially irreversible over a given two- or three-year period, any effort to lower unemployment by ex pansionary fiscal-monetary means will, in this view, tend in the longer run to raise rather than lower the jobless rate. The alternative approach to the prosperity unemployment problem, directly attacking major structural barriers to jobs, has led to a hardly less pessimistic conclusion. While differ ing in emphasis and specific
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