THOUGH MOSTLY empty gesture, the final version of the Humphrey-Hawkins Full Employment Bill - passed by the Congress in mid-October and promising a simultaneous reduction of unemployment to 4 percent and of inflation to 3 percent by 1983, a balanced budget, a trade surplus and, for good measure mischief. It commits the United States to the traditional unemployment index.
For years, it has been known to everyone dealing with economic statistics that this measurement, as it has come down to us from the Great Depression, has become meaningless and misleading. The most its few remaining defenders now claim is that it measures with considerable lack of reliability the number of people in the labor force of this country who, if the pay were right and the hours were right, might be availabfle for at least a little work once in a while. For the past several years a task force of economics and statisticians has been at work in the Department of Labor to develop a new unemployment index.
It would have been politically difficult, in any event, to get such a new index accepted; any change would have meant lowering both the official unemployment count and the definition of "full employment," and would thus have been fought bitterly by labor. But Humphrey-Hawkins, while fatuous as a "full employment bill," made sacred cows out of the wrong and meaningless full employment definition.
The figures which business needs to factor employment and unemployment into its decisions, are however, available and are indeed printed in practically every newspaper every month. Yet few businessmen, in my experience, know and use the figures properly.
There are three such figures.
1. The most meaningful one is the number and proportion of people who have jobs. Total employment is far more important than any unemployment figure. As long as both the number of people with jobs and the percentage of the labor force with the jobs go up, consumer spending is bound to rise. If both go down significantly over any period of time - three months or more - consumer spending will drop. And if the two diverge, we should be alert for abrupt changes in the labor supply. EMPLOYMENT at a High
AS MOST people know by now, both the number of people with jobs and the percentage employed now stand at an all-time high, without precedent in the economic history of the United States or indeed of any other major country. And this rapid growth took place in years which many economists, using the officials employment figures, characterized as "the most serious recession since the Great Depression."
Actually, both the number of people employed and the percentage of people in employment went down in only three quarters of the last six years, and then only by the merest flicker. In terms of consumer demand and consumer buying there was, in other words, bo recession at all.
2. The second figure to watch is the unemployment rate for adult male heads of household. It now stands around 2.75 percent, which, in effect, means severe labor shortages and very strong inflationary wage pressures. But in a few bad months of the recent recession, it reached true unemployment levels of 6 to 7 percent, albeit only for very short periods.
Unemployment among male adult heads of households is what the official unemployment figure was originally designed to measure, way back in the 1930s. Then male adult heads of household were the American labor force. It is not surprising, therefore, that so many people assume that the official unemployment figure still refers to male adult heads of household. It is this assumption on which most economists base their "full employment" budget, or the projection of the alleged "income loss" to the country because of unemployment. It is also this assumption which made Humphrey-Hawkings put the "full employment" level at 4 percent unemployment.
But of course our official figure no longer focuses on male adults heads of household. They now constitute no more than two-fifths of our labor force. The other three-fifths are women, the great majority not "heads of household," but "dependents," holding "second jobs," if not altogether available for part-time work only; people who are officially "retired," but available for part-time work, up to the income level at which their earnings endanger their Social Security pensions; a good many yound adults, not yet burdened with family responsibilities, who optimize their incomes by alternating between periods of full-time employment and periods of official "employment," when they draw tax-free unemployment compensation; unemployables registered for "employment" to be eligible for welfare checks and food stamps; and finally, a sizable number of full-time students, available for part-time work only and then often for no more than an occastional hour or so on a weekend or evening.
Still, adult male heads of household, while only 40 percent of the labor force, account for some two-thirds of all hours worked precisely because they are primarily full-time workers. And they account for the overwhelming majority of skilled workers, managers and professionals.
3. The last figure to look at is the one th newspapers print first the official unemployment figure. Statistically, it is an abomination, an Alice in Wonderland stew of apples, oranges and red herrings. Nothing can make it valid again. A good many people have been trying to make it again a meaningful economic figure by moving the "full employment" benchmark of the official figure from the traditional 3 or 4 percent up to 6 or 7 percent. While more realistic, this still would not make the figure useful and meaningful for any economic purpose - whether forecasting or economic policy.
And yet politically , the traditional unemployment figure is potent. The official figure dominates official rhetoric and thus induces political gestures which, while futile, are likely to be expensive, inflationary, and the more damaging the less actual results they produce. As a measurement of political pressure, the official employment figure is therefore to be taken seriously. Another Yarkstick Needed
EVEN IF WE could get rid of the official unemployment measurement - and Humprey-Hawkins makes this unlikely, at least for the next few years - the American labor force has probably become too heterogeneous for employment and unemployment to be measured by any one yardstick. The one measurement that might be valid would, at the same time, be both exceedingly complicated and politically unacceptable. It would convert the number of prople available and lookingfor work into equivalent full-time jobs - the way universities convert part-time and evening students into "full time equivalents."
Even then, the figure would have to be adjusted for the number of people (largely young whites) who are registered as employment only because it optimizes their income, for those who register for work only to obtain welfare benefits, and for the fairly large number of young people (especially blacks) who are kept out of the labor force by the minimum wage laws.
Such a full-time equivalent measure would probably show today an unemployment rate around 31/2 percent, compared to the official rate of about 6 percent. But pending the development of an index that reflects the heterogeneity of the American labor force, the businessman - and economist and policymaker as well - would be well-advised to steer by at least two and preferably three separate employment indices: the number and proportion of people in the labor force who have jobs; the employment and unemployment figure for male adult heads of households, and the Humphrey-Hawkings unemployment fiction of the traditional index.