Full Employment Is Good for Society

On the day in 1968 when the Rev. Dr. Martin Luther King Jr. was shot, he was in Memphis to show support for striking sanitation workers. By then, he had come to see fighting for economic equality as a crucial part of the struggle for civil rights.

Unfortunately, there was little progress on that front for the next half-century. By many measures, the economic divide between Black and white Americans was as wide in the late 2010s as it was in the late 1960s.

The good news: Over the past few years, we’ve seen a significant decline in inequality on multiple dimensions, including a narrowing of the gap between Black and white Americans.

Did the racial economic gap persist so long because the civil rights movement failed to make any progress against racism and discrimination? No. Overt racial discrimination has become relatively rare — partly because of the Civil Rights Act of 1964 — and implicit discrimination has probably declined, because we are a less racist society than we were.

OK, I’m sure I’ll get some grief over that assertion. Of course, racism hasn’t gone away; it’s still far more pervasive than white Americans can easily appreciate. But we were incredibly racist in the past. To take one gauge, as late as the election of Ronald Reagan in 1980, only around a third of white Americans approved of interracial marriage; today almost everyone approves — or at least claims to.

So why didn’t Black Americans make relative progress? Probably because the benefits of reduced discrimination were offset by an increase in overall income inequality, in particular a widening gap between wages in relatively low-paid jobs and wages for the highly paid. Since Black workers remained underrepresented in well-paying jobs, the growing polarization of economic opportunity snatched away many of the gains one might have expected from a society that, again, was still racist but not as racist as before.

Which brings us to the surprising progress of the past few years.

Whenever I write about the good economic news of 2023, our remarkable success in sharply reducing inflation without a surge in unemployment, I get two kinds of pushback. Most of that pushback comes from Republicans, three-quarters of whom say that it was a bad or terrible year for the country, even though almost 70 percent of them say that it was OK or better for them personally. But I also get pushback from some on the left, who insist that our so-called recovery helped only the rich and did nothing for ordinary families.

This is completely wrong.

I’ve written about work by David Autor, Arindrajit Dube and Annie McGrew showing that the post-Covid economic recovery has produced especially large wage gains at the lower portion of the scale, compressing the wage distribution. Wages in America are still highly unequal but not as unequal as they were just a few years ago. In fact, they found, we’ve reversed almost 40 percent of the rise in one key measure of inequality that took place during the great income divergence from 1979 to 2019.

And because lower overall inequality disproportionately helps Black Americans, one effect has been a “historic reduction in racial wage disparities,” Dube posted on social media.

Why did wage inequality fall? A number of states increased their minimum wages. Unions won some victories, and fear of unionization may have pushed some employers to increase pay. The main factor, however, was surely a tight labor market: Full employment greatly increases workers’ bargaining power.

Full employment also did wonders for another aspect of racial disparities: high Black unemployment. Last hired, first fired is still a very real fact of race relations in America; one measure of our success in finally achieving something like full employment is that the gap between Black and white unemployment rates is the smallest it has been since the government started collecting data on the subject.

Now, recent gains for low-wage workers have fallen far short of restoring the relatively middle-class society I grew up in, and we’re far from racial equality, too. But we have made real progress, even if there’s still a long way to go.

All of which has an important moral for policy: Full employment is extremely important not just because it leads to a higher gross domestic product but also because it helps create a healthier, fairer society. And we should fight back against political forces standing in the way of job creation. In particular, a gratuitous recession could all too easily undo much of the progress we’ve made.

It’s now clear that the deficit obsession of the 2010s, which delayed recovery from the 2007-9 recession for many years, was a social as well as economic tragedy. And we’re at risk of a similar tragedy if the Federal Reserve lets itself be bullied into keeping interest rates high by Republicans accusing it of cutting rates to help President Biden — not, you know, because the inflation that caused it to raise rates has subsided.

There are many things we still need to do to fulfill King’s vision, and some of them will be hard. But one thing that should be relatively easy is providing an economy in which Americans who are willing to work — which means a great majority of adults — can find jobs.

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