Because the world we live in is constantly changing, macroeconomics also has to adapt to take into account changes in the labor force, the changing the nature of work, and the evolution of people’s goals regarding employment. This article looks at some of the current challenges to how we think about employment and unemployment issues on a national scale.
The Changing Labor Force
The labor laws and labor-related social policies that were enacted during and after the Great Depression made certain assumptions about what a “good job” was. Most workers were men, and the assumption was that men who were employed full time—perhaps with options for overtime hours as well—could provide for their families, and formed the base of the a solid, reliable workforce and a stable society. These assumptions influenced macroeconomic thinking, as well. Employment of the male “breadwinner” was the explicit or implicit goal of employment policies.
Over the second half of the twentieth century, however, the composition of the labor force changed considerably. Women’s labor force participation (LFP) rate rose dramatically, while men’s LFP dipped. The labor force participation rate is calculated as
The LFP rate indicates the fraction of potential paid workers who are either in paid jobs, or who are seeking and available for paid work. Figure 1 shows the labor force participation (LFP) rates of men and women (age 16 and older). In 1950, many women worked only until they were married, or after their children were grown, so that women’s LFP was only 34%. During the next four decades, women increasingly entered the labor market, until women’s LFP rate flattened out at about 59-60% from the mid-1990s onwards. The rise of the civil rights and women’s movements during the 1960s and 1970s certainly contributed to this expansion in women’s labor market activities. Some economists also point to expansion of the service sector, reductions in the average number of children per family, and other factors to help explain this increase.
Men’s LFP, meanwhile, dropped from 86% in 1950 to 73% in 2006. Tendencies to increased time spent in schooling before beginning work, and earlier retirement from work, explain some of this change. In 1950, 70% of the people in the labor force were male; now, the figure is only 54%.
The labor force has changed in other ways as well. In 1975, Hispanics or Latinos made up only about 4% of the U.S. labor force. Currently, this statistic is 13%.
The Changing Nature of Work
For most of the twentieth century, people often thought of “a job” (or at least a good job) as something you typically did Monday through Friday, 40 hours a week, for a wage or salary and benefits (such as health insurance and pension plans). People often expected to stay in the same job for years, or even decades. In recent years, it has become popular to talk about how employment is becoming more “flexible.” The term “flexibility” has two very different meanings in the context of macroeconomics and labor economics, however.
One meaning of “flexible” work is work that is more suited to people’s varying needs, especially given family constraints, desires to get an education, and so on. Some workers—especially professional and managerial workers—now enjoy “flextime” or the ability to set their starting and ending times. Job-sharing and part-time work allow employment to be more easily combined with family care, studying, or leisure pursuits. It is still the case, however, that many jobs are inflexible and not “family friendly.” The United States is practically alone among industrial nations in not offering paid, job-guaranteed leaves for new parents. These sorts of lack of flexibility create problems for people who want “good jobs” with good pay and promotion opportunities, but who want to be able to do meet other life goals and make other important contributions as well. The term "flexibility" can also refer to people's ability to change jobs when they want to, or retrain for new careers.
But the term “flexibility” has also been used to refer to policies that make things easier for employers—and often make life more difficult from a worker's perspective. Many employers would like to be able to have complete discretion over setting their worker's hours and pay, to be able to terminate employees quickly and without fuss, and to offer little in the way of benefits. Increasingly, some firms have hired many people as “independent contractors” or “consultants,” or as part-time workers, to avoid having to pay the benefits that they pay their regular full-time employees. More people now work non-standard workweeks, whether they want to or not, in an economy that is increasingly "24/7" (twenty-four hours a day, 7 days a week). Given short hours and low pay, some workers find themselves working two or more part-time jobs to get by.
Since unions often try to block such “flexibilization” of work by bargaining for guaranteed hours, increased benefits, and assurances of job security, the reduction in union power is one component of this phenomenon. Union membership topped out at about one-third of the workforce in the mid-1950s, with significant membership from private industry. Currently, only about 13% of workers are union members, and many of them are public sector employees such as teachers, police, and firefighters.
To some extent, "flexibility" from the employee's perspective is also in the interest of employers. Workers who are more well-rested and less stressed about their families, because of accommodating schedules and expectations, can be more productive. And to some extent, "flexibility" from the employer's perspective is also in the workers' interest. An overly rigid labor market, in which workers are too expensive and difficult to fire, could cause employers to try to minimize the number of workers they must hire, thus reducing the number of jobs. From a well-being perspective, the question is how a good balance can be achieved.
Another aspect of work patterns that has changed substantially in the last few decades is the pattern of hours of work. While some observers claim that people in the United States are now working increased hours, and others claim that we are now benefiting from increased leisure, the average workweek has, in fact, changed little in the last thirty or so years. What has happened, however, is that some groups of people are increasingly working very long hours, and others very short hours, so that there are now more people at both extreme ends of the spectrum.
In 2000, 26.5% of employed men and 11.3% of employed women worked 50 or more hours per week, up from 21% and 5.2%, respectively, in 1970. Often people in this group are professionals or managers with heavy job responsibilities. People in such job categories usually receive fringe benefits from their employers—but do not, by law, have to be paid extra when they work overtime. On the other hand, the number of people working short hours has also been increasing. In 2000, 8.6% of employed men and 19.6% of employed women worked 30 hours a week or less, up from 4.5% and 15.5% in 1970. Often these employees are in hourly wage jobs where overtime pay would be required by law (if the employers would offer the extra hours). Part time workers are less likely than full time workers to be offered fringe benefits.
Is the increasing divergence in the hours that people work evidence that they are now able to tailor their workweeks to their own convenience, or that their employers are making them work too much, on the one hand, or offering so little work that they find it hard to get by financially, on the other? Survey evidence suggests that, in many cases, it is the latter. Jerry A. Jacobs and Kathleen Gerson, in their book The Time Divide, report that “Those who work few hours on average prefer to work more, while those who work many hours on average prefer to work less.” In one survey, 80% of men and 90% of women working over 50 hours per week stated that they would prefer to work less. Those who worked 50-60 hours stated that, on an average, they would prefer 13 fewer hours. On the other hand, many people working short hours wanted to work more. Most people tend to preferred hours that are in the 25-40 hour per week range.
This is important when thinking about the macroeconomics of labor markets, since any given number of total employment hours can have very different well-being consequences depending on how the hours are spread across the population of workers. One case would be an economy in which some groups of people work very long hours, while other people are unemployed or underemployed. Another case would be where working hours are distributed more evenly, allowing workers to have time for family care while reducing the number of unemployed.
Several countries in Europe have had movements towards shorter standard working hours, often for macroeconomic reasons of reducing standard measures of unemployment, but also to encourage strong families and to reduce consumption for ecological reasons. Most European countries have legal limits on the number of hours per week an employee is allowed to work, and vacation time of at least one month per year is standard—even for workers who are just starting out. Because of these different patterns of employment, a typical full-time worker in Europe now works an average of about two hundred hours (the equivalent of five forty-hour weeks) less per year than a full-time worker in the United States.
Whether an economy is able to generate and sustain “good jobs” (and good families and communities) depends on the whole institutional structure and dynamics of the national economy. The actions of business, governmental units, nonprofits (including unions, industry associations, and universities) and households all work together to determine the numbers and types of jobs that are generated, the number of workers in the labor force, and the skills with which workers are equipped. The responses of a country’s business leaders, policy makers, workers and consumers to natural resource constraints and to the challenges and opportunities offered by participation in global markets for goods, services, and finance further significantly impact the employment situation. The study of macroeconomics is only a beginning for this challenge.
- Global Development And Environment Institute, Tufts University
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