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What Is So Natural about High Unemployment

1988; American Economic Association; Volume: 78; Issue: 2 Linguagem: Inglês

1944-7981

Richard S. Krashevski,

Labor market dynamics and wage inequality

The prevalent but incorrect belief that the United States now has a natural unemployment rate around 6 percent fosters an unwillingness among the nation's leaders to promote economic growth sufficient to cut joblessness below that rate. Earlier, at least through the 1960's, a consensus held that economic growth could bring the nation's unemployment rate down to 4 percent, and even lower when combined with policies to address structural problems. In the last half of the 1960's, unemployment remained below 4.0 percent for four consecutive yearsone of the best sustained performances in the post-World War II period. But in the 1970's and 1980's, joblessness climbed to higher levels at each peak and trough and, even though the 1978 Humphrey-Hawkins Act required the achievement of 4 percent unemployment, the consensus to do so fell apart. Several reasons have been advanced to explain the deterioration and justify an upward redefinition of the minimum unemployment rate achievable through policies that raise aggregate demand. If examined carefully, however, the arguments just don't stand up. Among such ideas are the following: 1) women and youth entered the labor force in great numbers, and allegedly have naturally higher rates of unemployment; 2) joblessness cuts, in particular below the socalled normal rate, supposedly generate wage and price increases which cause recessions and rising joblessness; and 3) social programs and labor legislation ostensibly reduce beneficiaries' needs and desires to work and also make firms hesitant to add workers. The proposed reasons at most account for a minor part of the climb in joblessness, and do not prevent the attainment of 4 percent unemployment through policies that promote strong economic growth. Nonetheless, structural unemployment is a serious problem, and its alleviation calls for industrial and trade policies, job and training programs, antidiscrimination enforcement, and other special initiatives. Such efforts will add momentum as economic growth propels the nation towards full employment.