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Home Publications Blogs Beat the Press Getting to Full Employment By Lowering the Goalpost

Getting to Full Employment By Lowering the Goalpost

Tuesday, 11 March 2014 19:10

The folks controlling economic policy are apparently getting frustrated with their inability to restore the economy to full employment. So it seems that their answer is to redefine full employment to make the task easier, or so Evan Soltas tells us in a Bloomberg View piece today.

Soltas notes that the quit rate is not obviously out of line with the unemployment rate, which he adds is "close to most estimates of unemployment's natural level." It's worth noting that the quit rate used to be much higher in the years before the recession, and that was not a period associated with accelerating inflation, the normal indicator for an unemployment rate that is lower than can be sustained.

quit rates

                                            Source: Bureau of Labor Statistics.

In fact, at no point in the 2001 recession or subsequent period of weak employment growth did the quit rate ever fall as low as it is now. So it would take some heavy duty re-defintion to get us to be near full employment with the current labor market situation. 


Comments (4)Add Comment
written by urban legend, March 11, 2014 11:06
How would someone who believes in a NAIRU describe a mechanism for how it works? Inflation didn't happen in the late 90s when unemployment dipped below 4% (and more important, the employment rate reached almost 65% in contrast to today's rate below 59%); it didn't happen in the early 1950s, either, although the unemployment rate dropped below 3%. In a time when labor power is immensely weaker than it was when the theory was developed, is there a serious case that could be made that we are remotely close to experiencing a cost-price spiral?

I doubt it.
As Long as Employment Levels and Quit Rates are "Natural", Move the Goalpost Anywhere You Like
written by Last Mover, March 12, 2014 7:31

The quit rate can mean several things: Leaving bad jobs for better jobs, leaving full time jobs for part time jobs and vice versa, or leaving the labor force altogether.

If the labor market is tight at full employment, a low quit rate indicates employers are not competing for employees with higher wages and benefits. A higher quit rate could indicate that, or it could just mean employees see employers as highly interchangeable, available and dependable so they take advantage of it, for example to move around a lot.

Since healthy tight labor markets are now a thing of the past not likely to be seen again in our lifetime, high quit rates are now associated with crummy low wage jobs with no benefits where high turnover goes with jobs taken by desperate workers, or aberrations like Obamacare that cut the forced link between jobs and health care, allowing employees to quit jobs they would have quit anyway in a tighter labor market with more health care options.

The central issue of a "natural unemployment rate" always revolves around the size of the labor force combined with going wages for which workers are willing to work in the first place, both of which determine the current rate of unemployment.

Most conservatives don't accept the calculation of unemployment by asserting too many leave the labor force due to government welfare that pays them not to work, or too many in the labor force are not willing to work for lower wages. The result is a circular definition that renders current wages and employment levels meaningless by moving the goalpost, including manipulaton of quit rates.

That leaves the "natural" level of unemployment and quit rate as a tautology. It is what it is because it was what it was, conveniently defined to contrast respectively with a "biased" calculation of overestimated unemployment and underestimated quit rates because, well you know, the labor force is smaller than it was supposed to be, and vice versa for the quit rate, in "natural" terms.

As the economist joke goes in response to the question, What is the unemployment rate? Well, what would you like it to be?
About Quit Rates
written by Larry Signor, March 12, 2014 4:06
Higher quit rates are associated robust GDP growth, expanded economic opportunities and a certain amount of redistribution from rentiers to workers. The third point is why the goal posts are being moved. Quit rates at current levels are indicative of an under-performing economy, limited economic mobility for workers and rising corporate profits. That sounds right.
written by urban legend, March 13, 2014 1:25
We don't have BLS quit rate data for the employment rate peak in early 2000, but in the first quarter of 2001, when the employment-to-population ratio had dropped off a bit from its peak (but was still well over 64%), the quit rate averaged 2.5. It dropped to 1.3% in the depths of the collapse from 2009 into 2010, so that gives us a good idea of the range we can experience. Now it's hovering between 1.7 and 1.8%, which means, regardless of how much weight to give it as a measure of labor market strength, it has recovered roughly one-third of its potential.

One third is not remotely close to 100%. We are not remotely close to full employment. We will not be until the employment-to-population ratio in the 25-54 age group hits 80% (which is still considerably lower than it was at its peak). At 76.5% we have a long, long, long -- long -- way to go. Anyone who says we are getting close has an agenda other than what's good for Americans as a whole.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.