In a story in Monday's editions, reference to potential loss of taxes by the year 2000 if unemployment stays high should have been $3 trillion, not $3 billion as printed.
Unless the Carter administration changes its employment policy objectives, the U.S. could lose up to $15 trillion in national output and as much as $3 billion in taxes by the year 2000.
That is the conclusion of a new study of the economic fall-out of high unemployment published yesterday by the Exploratory Project for Economic Alternatives, a Washington research group.
The study said that President Carter had steadily raised the estimate of unemployment that he considers tolerable from 2 per cent to something over 5 per cent. A main conclusion is that the federal government should not accept a jobless rate higher than 2 to 3 per cent.
The study consists of an analysis by assistant professor Steven Sheffrin of the University of California at Davis, and a commentary by project co-directors Gar Alperovitz and Jeff Faux.
Alperovitz and Faux have published other studies recently focussing on new ways of tackling basic economic problems. Their proposals would concentrate an anti-inflation program on price increases for food, housing, energy, and health care that they say affect 70 per cent of the average family budget.
The thrust of the study on unemployment is that the definition of "full" employment has gradually "slipped upward" since the mid-1950s. In 1955-57, the most successful years of the Eisenhower era, unemployment averaged only 4.3 per cent, and the argument was over how low the rate could be pressed. A 2 per cent rate was not thought impossible, the authors recall.
"Our national debate today," say Alperovitz and Faux, "is focused on the sad question of how high an unemployment rate we must accept, rather than how low a rate we could achieve were we to make it our priority."
The authors recount that Carter, in the early stages of his campaign when he was a "Washington 'outsider'", said his goals were 2 per cent interest rate. Their argument is that a 2 per cent unemployment rate is "not nearly as unrealistic as some may think."
Carter later set 4.5 per cent as a full employment target for 1980, but the mid-year budget review raised the projection to 5.2 per cent.
Taking what he terms a "modestly optimistic" forecast of an average of 5.5 per cent unemployment over the next 25 years. Sheffrin's study shows a loss of $6 trillion in gross national product and $1.3 trillion in taxes, compared to a 2 per cent unemployment yardstick. The $15 trillion loss represents a "worse case" scenario, based on an unemployment rate of 9.9 per cent.
Since 1956, Sheffrin calculates, the failure to maintain the 4.1 per cent rate of the mid-Eisenhower period has cost the nation $2.3 trillion in lost production.
In general, the argument has been made in the last several years that the 4 per cent "interim" unemployment target established by President Kennedy's Economic Council in 1962 as the equivalent of full employment had to be raised to avoid inflation.
Studies by the Brookings Institution, notably one by economist George Perry, suggested that with more women and teenagers in the labor force, serious inflationary pressures would be experienced around a 5 per cent rather than 4 per cent unemployment level.
The last (1976) economic report of the Ford administration said that when the effects of unemployment benefits and welfare payments were considered, full employment was probably in the range of 5.5 to 6.0 per cent.
Columbia economist Philip Cagan, in a study published this past summer by the conservative American Enterprise Institute, said "an effective policy against current inflation gives little leeway for reducing unemployment below the mid-1977 rate of 7 per cent." That level as a definition of full employment has also been endorsed by President Nixon's Economic Council chairman, Herbert Stein.
Alperovitz and Faux argue for a restoration of "the common sense of the years before Richard Nixon took office." Instead of consciously allowing unemployment to rise as a way - probably useless - to attack inflation, they reiterate their plan for "micro" measures to deal with basic price pressures.They also argue for job-training programs of the kind contained in the Humphrey-Hawkins bill.
Without such an approach, they warn that, despite Carter's disavowals, "wage-price controls may be inevitable over the next years."