DOCUMENT RESUME ED 197 075 CE 027 574 AUTHOR Pierson, Frank C. TITLE The Minimum Level of Unemployment aad Public Policy. INSTITUTION 01,1011n (W.E.1 Inst. for Employment Research, Kalamazoo, Mich. REPORT NO ISBN-0-911558-75-6: ISBN-0-911558-76-4 PUB DATE 90 NOTE 198p. AVAILABLE FROM W. E. Upjohn Institute for Employment Research, 300 S. Westnedge Ave., Kalamazoo, MI 49007 ($8.50, hardcover: $5.50, paperback. Quantity discounts available). !DRS PRICE MF01 Plus Postage. PC Not Available from EDRS. DESCRIPTORS Adults; Disadvantaged; Educational Opportunities: *Employment Patterns: Equal Opportunities (Jobs): *Federal Government; *Government Role: Job Training: Labor Economics: Labor Force Nonparticipants: Labor Market: Policy Formation: *Public Policy; Public Service Occupations: Social Discrimination; *Unemployment IDENTIFIERS *Structural Unemployment ABSTRACT 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 employmentor prosperity( "structural unemployment"). While the problem of cyclincal joblessness dominates public policy discussion at the present time, structural unemployment is being increasingly recognized as one of the nation's most serious domestic problems. Persistent high levels of "prosperity" or structural unemploymentare attributable to seemingly intractable structural imbalances within the economy. The key policy problem centers on theuse 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. The study concludes that, while differing in degree, both cyclical and structural unemployment should be addressed in periods of high as in periods of low employment. 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. (KC *********************************************************************** Reproductions supplied by EDRS are the best that can be made from the original document. *********************************************************************** The Levelpf Unemployment PubliandcRaley Frank C. Pierson Swarthmore College "PERMISSION TO REPRODUCE THIS U.S DEPARTMENT OF HEALTH, EDUCATION I WELFARE MATERIAL IN MICROFICHE ONLY NATIONAL INSTITUTE OF HAS BEEN GRANTED BY EDUCATION THIS DOCUMENT HASBEEN REPRO- j DUCED EXACTLY ASRECEIVED FROM THE PERSON OR ORGANIZATIONORIGIN- OR OPINIONS co-Rimpleyitekl ATING IT POINTS OF VIEW REPRE- STATED DO NOT NECESSARILY INSTITUTE OF SENT OFFICIAL NATIONAL TO THE EDUCATIONAL RESOURCES POLICY EDUCATION POSITION OR INFORrATION CENTER (ERIC)," THE W.E. UPJOHN INSTITUTE FOREMPLOYMENT RESEARCH Library of Congress Cataloging in Publication Data Pierson, Frank Cook, 1911 - The minimum level of unemployment and publi.-nicy. 1. UnemploymentUnited States.2.' lofted Full employment policies I.Title. HD5724.P475 339.5'093 80-26536 ISBN 0-911558-764 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. Brawer Phyllis Buskirk H. Allan Hunt John R. Mekemson Carla J. Noe Jo Bentley Reece Robert A. Straits Wayne R. Wend ling Jack R. Woods iii 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 lime, structural unemploy- ment is being increasingly recognized as one of the nation's most serious domestic problems. Persistent high levels of "prosperity" or structural unemploymentare attributable to seeminglyintractablestructuralimbalances withinthe economy. As Professor Pierson notes, the key policy prob- lem centers on the ur,e 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 indu, ing 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 employmentor 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 h,w to balance short-run and long-run goals for the economy in the selection of public policy alternatives. Facts and observations expressed in the studyare the sole responsibility of the author, His viewpoints do notnecessar- ily represent positions of the W.E. Upjohn Institute for Employment Reseal -h. E. Earl Wright Director Kalamazoo, Michigan November 1980 V ,to 6 Contents Foreword Chapter 1 Dimensions of the Problem. 1 Chapter2The Shifting Limits of Demand Management 13 Chapter3 Reducing Frictional and Seasonal Unemployment 29 Chapter4Reducing Structural Unemployment 53 Chapter5 Noncompetitive and Work Disincentive Barriers 71 Chapter6Discriminatory Employment Barriers.. 97 Chapter7 Strengthening Educational Opportunities 115 Chapter8 Public Service Employment Progrtms. 137 Chapter9Government Training Programs 155 Chapter 10Wage Subsidies and Employment (James R. Knickman, New YorP University).. 171 Chapter 11Conclusion 187 vii Chapter 1 Dimensions of the Problem In the last decade, unemployment has againbecome one of the country's most serious unresolvedproblems. Mass unemployment as it was known in the 1930scan 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 todayis that if reliance is placed on Keynesian macro-expansion policies alone, the jobless rate cannot be pushed below5 per- cent, perhaps not even below 6 percent, of the nation's labor force without unleashing severe inflationarypressures. Compared to the Great Depression such projections hard- ly appear alarming, but the economic andsocial repercus- sions of even small changes in the joblessrate can be ex- tremely serious. A rise in the jobless rate ofone percentage poirit, say from 4 to 5 percent, would add abouta million persons to the jobless rolls and, barring temporary offsets, would reduce real GNP by nearly 3percent. More serious still, the kind of unemployment that persists into periodsof general prosperity falls much more heavilyon 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- edwelfareexpenditures,policeprotection,and 1 2 DImells lom of the Problem neighborhood deterioration associated witlt concentrated joblessness of this type. Most damaging of all, persons who cannot even find stable jobs in boom periods can hardly he blamed for becoming completely discouraged and defeatist about their personal worth as well as Iheir 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 isattributable 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