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If this is correct, inflation would be the same after unemployment falls to 4.5 percent whether this goal were achieved in 1980 or 1985. The price level would be, however, higher under the faster growth path because inflation would be higher in earlier years. Moreover, the possibility that there are "speed limits”, beyond which inflation accelerates independently of the level of unemployment, cannot be ignored. The CBO annual report contains a discussion of the alternative paths, the fiscal and monetary stimulus required for each, and the inflationary risks.
UNEMPLOYMENT: THE MANY PROBLEMS
The United States has not just one unemployment problem but many. And the right mix of solutions to unemployment depends upon who is unemployed, and why.
Younger workers, for example, have relatively high unemployment rates even when jobs are plentiful and suffer disproportionately from recession-induced unemployment. Although workers between the ages of 16 and 24 account for only about 20 percent of the civilian labor force, they accounted for about 48 percent of the recessioninduced unemployment between 1973 and 1974. As shown in Table 2, fast growth would provide 400 thousand more jobs for teenagers in 1978 than would a slow growth path.
FIGURE 1.—Distribution of the civilian labor force and recession-induced
unemployment among age groups
1 Recession-induced unemployment is calculated by subtracting the unemployment during periods of low overall unemployment from that during periods of high overall unemployment.
Nonwhite workers of all sexes and all ages have higher unemployment rates than do their white counterparts during periods of both low and high unemployment. When the recent recession began, the unemployment rate among nonwhite workers was 4.3 percentage points higher than that among white workers. It was 6.0 percentage points higher at the depth of the recession and 6.2 in the first quarter of 1976, as shown in Table 3. Fast growth would mean 350,000 more jobs for minorities in 1978 (Table 2).
There is a direct correlation between levels of education and unemployment. In March 1975, the unemployment rate for college graduates was 2.9 percent while the rate for workers who had not graduated from high school was 13.8 percent. The rate for all workers was 9.2 percent. Less educated workers also account for disproportionately high shares of recession-induced unemployment. Workers in manufacturing (for both durable and nondurable goods) and construction account for disproportionately high shares of recession-induced unemployment.
Table 2.—DIFFERENCE IN EMPLOYMENT BY AGE, SEX, AND RACE
BY ACHIEVING 6 PERCENT RATHER THAN 5 PERCENT AVERAGE REAL OUTPUT GROWTH 1
White. (25–59) :
White---(60 and over):
White. Females: (16-19):
14. 1 66. 0
8 -4. 1
- 3. 7 - 63. 9
-6.9 - 120.6
-7.0 - 76.9
– 10. 5
1 From unpublished Urban Institute data.
• Monthly Labor Review, February 1976. Not seasonally adjusted. • Derived from Manpower Report of the President, April 1975.
Table 3.-UNEMPLOYMENT RATES BY RACE, SEX, AND AGE DURING THE CURRENT RECESSION 1 [Percent]
1 Seasonally adjusted quarterly rates: U.S. Department of Labor, Bureau of Labor Statistics.
2 Negro and other races of whom 89 percent are Negro. See Employment and Earnings: October 1975, U.S. Department of Labor, Bureau of Labor Statistics,
Unemployment among household heads has increased dramatically during the current recession. In January 1974, 1,533,000 household heads were unemployed. By November 1975, this number had grown to 2,980,000. Over a similar time period, the unemployment rate for household heads increased from 2.9 to 5.6 percent. (See Figures 2 and 3).
As to the why of unemployment, it can be caused by a number of factors, including-cyclical inadequacies of demand that cause short-term layoffs
or furloughs; -lags between the time workers leave one job and the time they
find others; -structural imbalances between the skill levels of available workers
and the skill requirements of employers; -disparities between the geographic locations of jobs and the
homes of workers; and -seasonal imbalances between numbers of jobs and numbers of
workers. Taking the who and why of unemployment together, it can be seen that not only does the unemployment rate vary among population groups, its causes vary among groups. The chronically high unemployment rates of teenagers is due in part to their lack of job skills and work experience, in part to the limited attractiveness and con
• Unpublished Bureau of Labor Statistics data:
FIGURE 2.-Unemployment rates of household heads
(seasonally adjusted) 1
FIGURE 3.-Number of unemployed household heads
stancy of the jobs to which they have access, and in part to their more limited need for income. The higher unemployment rates of lesseducated workers is associated with their disproportionate employment in industries with high employment variability. Even when workers with lower levels of education are within stable industries, they are more likely to be subject to unemployment than better educated workers. Workers in manufacturing and construction are more vulnerable to cyclically induced unemployment than most workers because of the cyclical volatility of demand for their industries' outputs.
The uneven incidence of structural and cyclical unemployment and the variety of economic and social factors that cause unemployment create a need for a wide range of short- and long-term direct Federal responses to particular unemployment problems. One specific response must be directed to the training and experience needs of teenagers, another to the income maintenance requirements of families, and a third to prevent the social damage that arises from long-term unemployment of primary family workers.
III. The "Direct Response" of the Federal Budget to Unemployment A. A VARIETY OF INSTRUMENTS
All Federal expenditure and revenue policies affect the levels of employment and unemployment. Defense and nondefense purchases of goods and services result in jobs. And as long as there are unemployed resources, these jobs result, in turn, in more jobs through the effects of the fiscal multiplier. Income assistance programs increase consumer expenditures and this produces increases in employment. In a similar manner, tax decreases and increases influence consumer and corporate expenditures which affect the level of employment. The potency of the fiscal stimulus depends, of course, on the amount of slack in the economy and the degree of monetary accommodation.
Table 4 categorizes various Federal programs according to whether they actually create employment opportunities, increase the employability of workers by increasing skills and facilitating access to the job market, or provide income assistance to unemployed individuals. Each set of programs represents a distinct response to employment conditions. In the aggregate these programs (and overall fiscal policy) represent Federal employment policy.
For fiscal 1977, the current policy estimate for this programatic response to unemployment is $41.7 billion in outlays and $4.9 billion in tax expenditures. Approximately 43 percent of current policy outlays finance programs that improve employability; and 45 percent to programs that provide assistance to the unemployed and 12 percent to projects that increase employment.' (see Table 5 and Figure 4.).
The programs included in Table 4 vary considerably in their responsiveness to the business cycle. Most programs that create employment directly are the result of increases in unemployment. For ex
A i The allocation is based on a very broad definition of programs that increase employability; it includes Federal aid to elementary, secondary, and higher education (excluding research and general education aid) as well as manpower training and vocational rehabilitation.