Ending Hunger in America, 2014 Hunger Report Full Report | Page 48

Reaching Full Employment

Todd Warnock

The majority of jobs
added since the end
of the Great Recession
have been in low-wage
occupations.

38? Chapter 1

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There is always churn in the economy as various employers eliminate jobs somewhere and
create them somewhere else. An unemployment rate below 5 percent is generally considered
full employment.10 Basically, this means that anyone who is able to work and wants to can find
a job, and those who have had to settle for part-time work have better prospects of moving into
a full-time job. In April 2000, and
again in September that same year,
the unemployment rate fell to 3.9
percent, its lowest level since 1970.11
Tight labor markets such as this
have become a rarity in the United
States—but that is not inevitable.
At full employment, the wages
of the lowest-income workers rise
fastest. From 1995 to 2000, the
hourly wages of workers earning at
the 10th percentile (in other words,
90 percent of workers earned
more) increased 2.1 percent annually, after shrinking by 0.9 percent
annually between 1979 and 1995.12
Between 1979 and 1995, unemployment rates had fluctuated
but never fell to the levels reached
from 1995 to 2000, showing that
the progress of low-income families depends not only on having a job themselves but on everyone else having one as well.
Normally, the unemployment rate is highest in low-wage sectors of the economy. With an
ample supply of workers to choose from, employers see little reason to increase wages. But
in a tight labor market, employers are more inclined to raise wages (and/or increase benefits)
to retain the best workers.
After welfare reform in 1996, the unemployment rate of families headed by single mothers
plummeted. The welfare reform legislation still receives an enormous amount of credit for
this. But the sudden decline in poverty among households headed by single mothers had
more to do with the strong economy and the expansion of work supports, such as the Earned
Income Tax Credit (EITC) and child care subsidies, than the new work requirements for
cash assistance. We know this because after 2000, the unemployment rate for single mothers
began rising again. Welfare’s work requirements had not changed, but the economy had. See
Figure 1.2. By 2007, single-mother families (and single-father families) had lost most of the
gains they’d achieved against poverty and hunger in the late 1990s. Poverty increased and
so did hunger. Welfare reform legislation may well have contributed to some reductions in
poverty in the strong labor market of the 1990s, but it did not prevent the shrinkage of those
gains in the weak labor market of the 2000s.

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