Those who accuse the Council of setting its sights too low also count among the unemployed the full-time equivalent of those working part time for economic reasons and also those underemployed in such industries as agriculture who would move to more productive employ ment if it was available. It is also their view that productivity is being restrained because industrial plants are operating below their most efficient levels of production. They would expect productivity to accelerate as output rose. Secondly, this subdivision of the expansionist school holds that demand for goods and services is so near to satiation that it is impossible for the private market sector of our affluent economy to absorb an output increase sufficient to reduce unemployment substantially. In their estimate, only the lowincome fifth of the population and the public sector of the economy offer sufficient outlets for the productive efforts of the potential labor force. The fact that the needs of the poor and the many unmet demands for public services and facilities hold higher priority than the demands of the marketplace in the value structures of this group of economists no doubt plays a role in their economic judgments. Structural unemployment Those who find the major explanations of unemployment in structural factors are primarily labor economists. Concerned professionally with efficient functioning of labor markets, they tend to focus on the development of skills and the placement of individual jobseekers rather than aggregates of spending and employment. The majority of this school maintain that increased aggregate demand is a necessary but not sufficient condition for reaching either the CEA's 4-percent unemployment target or their own preferred 3 percent. The pessimism of this group concerning the aggregate demand route to high employment has four bases. They argue that: (1) The concentration of unemployment among the young, the unskilled, minority groups, and depressed geographical areas is not easily attackable by increased general demand. (2) Their estimate of the numbers of potential members of the labor force who have withdrawn or not entered because of lack of employment opportunity exceeds that of the Council. (3) As the level of demand increases, changes in consumption patterns and technology will create a radically different demand for labor than in past high employment periods. Therefore, increased demand will put added pressure on skills already in short supply rather than employing the unemployed. (4) Technological change is replacing manpower to the extent that much higher levels of demand will be necessary to create the same number of jobs as in the past. The structural school of thought, too, has its hyperenthusiasts. These are not labor economists but fiscal conservatives who as an alternative to expansionary policies argue that a job is available for every unemployed person if only he had the requisite skill or would move to the appropriate locale. Among them are those who derogate the character, trainability, and will to succeed of the hard-core unemployed. Advocacy of the structural explanation does not necessarily entail support of structural legislation among this group. Policy implications After listening to all sides and shades of opinion, the subcommittee is more impressed by the degree of agreement than the range of differences. The advocates of the expansionist approach believe the recently enacted tax cut will be effective in eventually reducing unemployment to 4 percent of the labor force. However, they consider 4 percent too high as a longrun goal and believe programs to attack structural rigidities will be necessary to reduce unemployment below 4 percent. Those who stress the structural approach also believe increased aggregate demand and a faster rate of growth to be an imperative of reduced unemployment. They expect structural bottlenecks to prevent realization of even 4-percent unemployment, however, and place greater emphasis on education, training, and relocation. In either case, the policy implications differ in emphasis and not in content. The subcommittee endorsed the 1964 tax cut and was disturbed at the length of time it took for Congress to approve it. The various manpower programs appraised by the subcommittee gave clear evidence of the obstacles posed by an inadequate rate of job creation. Though some job vacancies do exist which can be filled by fitting the unemployed worker to the job, either by retraining or relocation, the jobs looking for workers are no more than a minor percentage of the number of workers looking for jobs. A successful employment and manpower policy is impossible except in a buoyant, high demand economy. At the same time, the subcommittee is convinced that the tax cut alone cannot solve the unemployment problem. In the first place, we are agreed that 4 percent is an excessively high rate of unemployment as a long-run goal. The free nations of Western Europe and Japan have demonstrated that predominately free enterprise economies can, through appropriate policies, maintain unemployment levels even below 2 percent of the labor force without unmanageable inflationary pressures. Our own experience in 1943, 1944, 1945, and 1953 demonstrated that, with adequate demand, unemployment levels below 3 percent were feasible here as well. Under the extreme wartime situation of those years, considerable inflationary pressures existed. Lesser inflationary pressures developed during the 1955-57 capital goods boom when unemployment was above 4 percent. This experience occurred, however, in an economy which was making no effort through manpower policy to assist its labor force to meet the demands of a high employment economy. It is in this regard particularly that the European experience is instructive. They have relied upon retraining, relocation and other labor market programs, not as weapons against unemployment, but as measures to restrain wage-price inflation in a high-demand economy. An unemployment rate of 3 percent has been widely used as a rough approximation of seasonal and short-term unemployment arising from a variety of causes. In view of foreign example and our own past experience, we consider 3 percent unemployment as an achievable national goal. Even at a 3-percent average, pockets of high unemployment by location, age, race, or other category would demand continued attention. Inflationary pressures may well arise as unemployment is reduced to 4 percent and below. These pressures can be met and constrained if appropriate manpower programs and wage policies are coupled with demand creating policies. Even if 4 percent were attainable by the tax cut alone, we see no reason to wait until it has been reached before undertaking the struc tural efforts admittedly needed to reduce unemployment below that interim goal. Such efforts also have the advantage of effecting the quality of the movement toward 4 percent and below, assuring that the hard-core unemployed share in the increased employment. A dual attack involving expansionist and structural measures is the only way to achieve and maintain minimum unemployment and should be undertaken simultaneously. We are also doubtful that the tax cut will be adequate to reach 4 percent unemployment within a reasonable length of time. The A original estimates of the impact of the tax cut were based on earlier introduction and higher Federal expenditure levels than now appear likely. The concentration of the tax cut's impact in the first year will probably provide sufficient demand for 1964 but Federal expenditure increases appear necessary if demand levels adequate to 4 percent unemployment are to be attained. The elimination of meaningful tax reform as a price of overall tax reduction also reduces the potential long-range impact of the original Kennedy administration tax proposal. The Council of Economic Advisers has drawn back from its previous position that the tax cut would be followed shortly by a 4-percent unemployment rate to state in its 1964 Economic Report, "By the end of the year, it is expected to fall to ap proximately 5 percent... but attainment of the interim goal of 4 percent lies beyond 1964." Even assuming adequate levels of demand, the structure of the demand for goods and services generated by expansion will not coincide with the skill structure of the unemployed. Considerable flexibility exists within the labor force and some workers will retrain themselves, others will move to areas where employment opportu nities exist and employers faced with product demand and job vacancies will undertake training and subdivide jobs to utilize unskilled workers. However, several years of rising unemployment, the growing group of long-term unemployed, the rapid accretion of young workers and the large number lacking the basic preparation to train for the demands of a more sophisticated technology pose a deep, seated problem which will not melt entirely from the heat generated by the probable level of demand created. The focus of demand will be on the highly trained and well educated, already in short supply. Employers, when a particular skill is in short supply, can always offer wage increases to lure workers from employment with competitors as an alternative to the expense of training programs. Groups whose skills are in relatively short supply have not proven reluctant in the past to take advantage of their fav orable bargaining positions. Shortages of key skills contribute to shortages of goods and therefore to demand-inflation, underskilled employees or inefficient substitutes for scarce skills also contribute to cost pressures. A policy of sole reliance on demand-creating measures is certain to be more costly in terms of pressures on the price level than a dual attack through employment and manpower policies. Needed levels of demand The United States finds itself in the interesting position of having idle manpower and industrial capacity and an immense backlog of unfulfilled public needs for which the manpower could be used and the funds expended. It was in reference to this paradoxical situation that the Swedish economist, Gunnar Myrdal, remarked to the subcommittee, "It is almost fortunate, as I see it, that you have such tremendous amounts to be done in reconstructing your cities and modernizing your transport system." The very expenditures needed for development of manpower resources, the alleviation of poverty and the meeting of accumulated public needs could, along with the tax cut, generate the added demand necessary to reduce unemployment to 3 percent of the labor force. Later in the report, on page 40, the subcommittee establishes 1968 as a target for accomplishment of the 3-percent goal and shows that an annual Federal expenditure increase of at least $5 billion will be necessary in addition to the tax cut if the goal is to be realized. These needed expenditure increases plus additional amounts to offset possible reductions in defense expenditures or other existing programs make an attack on accumulated social ills and aggressive efforts in the development of manpower resources not only possible and desirable but a necessary condition for full employment. E. CONSEQUENCES OF THE MANPOWER REVOLUTION Our rising standards of living and declining hours of work over the past century are primarily the products of technological change. A growing labor force offers the manpower resources for both increased wealth and an attack on pressing social problems. It is a sad commentary on our economic flexibility and political inventiveness that these two promising developments have become the sources of fear instead of rejoicing. Failure to anticipate the existence and direction of the manpower revolution and meet it imaginatively has had serious adverse consequences for our economic and social structure. 1. THE NEED FOR ECONOMIC GROWTH The forces which have spawned the manpower revolution have created a situation in which the economy must generate an average of 32 million new jobs a year through the rest of the decade just to keep unemployment from rising beyond its persistent recent level of only 512 percent of the work force. An additional 2 to 32 million jobs would be needed to reduce unemployment to 4 percent of the labor force and another three-fourths of a million to reach 3 percent. This includes an allowance for workers who reenter the labor force as job opportunities increase. The rate of economic growth necessary to create enough jobs to hold unemployment at present levels exceeds 4 percent. In order to reduce unemployment to 3 percent by 1968, the economy would have to expand at nearly 52 percent per year in constant dollars plus additional growth in money terms to offset any increases in the price level. There is no insuperable technical obstacle to prevent us from achieving these growth rates. There are a multitude of unmet needs in our society where new employment can be generated should we attempt to fill them. Full employment is generally accepted as a desirable condition. Yet we have never specifically declared it to be a priority national objective. We have so far failed to adopt national policies which could make that goal a reality. If we expect to avoid the high social and economic costs of persistent and even rising un employment we must take the explicit policy steps necessary to avoid it. 2. THE COSTS AND IMPACT OF UNEMPLOYMENT Unemployment statistics do not measure the full costs of insufficient employment. To the between 5 and 6 workers out of every 100 now unemployed, even during a period of unprecedented prosperity, must be added those seeking full-time work but able to find only part-time employment. If this partial unemployment were calculated in fulltime equivalents it would increase the employment rate to nearly 7 percent. Somewhere between 800,000 and 1,500,000 persons are estimated to have withdrawn from the labor force or failed to enter because of the lack of employment opportunity. The shortfall between projected and actual participation rates is especially marked among males 14 to 19 years of age and 45 and over. Some of the falling participation of youth is doubtless attributable to rising educational attainment. The principal explanation for the greater than expected withdrawal of the older worker is discouragement at the prospects of finding a job and resignation to living on a lower income, usually social security or a pension, than could be earned by obtaining employment. Various witnesses estimated the "real" unemployment rate including these considerations at between 7 and 9 percent of the potential labor force. Additional underemployment exists among those in industries, such as agriculture, who would move to more productive employment if it were available. Nonagricultural employment, too, is burdened to some unknown extent by redundant manpower retained by union pressure or management reluctance to lay off employees for whom no alternative opportunities are available. In addition, unknown numbers work below their potential skill, either because better jobs are not available to them or because they lack the opportunity, guidance, or motivation to develop their higher skill potential. The annual loss of potential output of useful goods and services which results from 512 percent unemployment compared to 4 percent has been estimated by the Council of Economic Advisers at $30 to $40 billion. Taking 3 percent as the appropriate goal and including other measures of involuntary idleness, the output loss is substantially larger. Certainly the annual loss from excessive unemployment in these terms is greater than the entire annual defense budget, for instance. Among the consequences of a restrained gross national product are reduced standards of living for everyone, decreased Government revenues accompanied by greater welfare expenditures and a lessening of our ability to meet international commitments. The costs of unemployment are never borne equally, however. According to the testimony of Secretary of Labor W. Willard Wirtz, an average of 4 million persons were unemployed each month during 1962 and another 2.7 million who wanted full-time employment were working part time. Approximately 14 million men and women or one-fifth of the labor force were unemployed at some time during the year. Two million persons had 2 spells of unemployment during 1962 and 22 million suffered 3 or 4 spells. Over 4 million were unemployed 15 weeks or longer during the year and about 2 million for more than 6 months. One-sixth of all family heads experienced some unem |