Bill Spriggs

The Federal Reserve Board’s Open Market Committee will be meeting on September 16-17. The Wall Street gamblers have been egging on the Fed to change its current course and to start raising interest rates.

In part this will add another gaming table to play on, but some of them have been holding their positions in the invisible derivative markets on when interest rates will move again as the Fed unwinds its current high holdings of Treasury notes in reserve. They try to make arguments sounding as if they care about the state of the economy by conjuring the inflation boogey monster. With continued low and falling oil prices and stagnant real wages, they have instead begun to argue that interest rates need to go up, because it is only inevitable that at some time they must go up.

At the heart of their debate is a theoretical relationship between full employment and inflation. Part of the problem now is that the severity of this downturn chased many workers out of the labor market. At the current levels of unemployment and job vacancies, in the past, wages would be higher. The argument is that wages will start to climb soon, and those out of the labor market will not return to looking for work in response to the higher wages; the nation’s wages will just push up costs.

After the peak of 2000, real wages have been falling. The pace of the collapse stalled as the economy finally strengthened in late 2007. But then wages collapsed again. The U.S. Bureau of Labor Statistics shows that for the vast majority of America’s workers, real wages have remained below their 2007 levels, including the value of wages and benefits.

What is being said is that fewer people are going to be in the labor market because, since 2000, the aging of the population has picked up; the Baby Boomers of the 1940-1960 era are now starting retirement. But this ignores a large part of the decline in the labor force among prime age workers; women, in particular.

With barriers coming down for women in education and in the labor market, the wages of women showed steady improvement from the 1970s to the end of last century, accompanied by a steady growth in women’s labor force participation. A big slow-down happened when the labor market slowed at the end of the 1980s. As wages rose in the 1990s, women’s labor force participation picked up its previous climb. But the downturn of 2001 and the fall in wages pushed women’s labor force participation back down, and it dipped again when the labor market collapsed in 2007.

Prime working-age women and, in particular, young prime working-age women still carry an inordinate balance of basic social infrastructure-the caring economy of holding families together, whether child rearing or parent help. So women remain sensitive to the value of money earned in the market and the costs of home production; this makes them sensitive to real wages. If real wages rise, then it is very likely women will again increase their labor market participation. But, at stagnant wage levels, it is likely the current pace of net job creation is enough to keep unemployment flat. When wages rise, and women’s labor force participation returns to its previous pace, the unemployment rate may rise.

Currently, unemployed women are still more likely to quit looking for work than to become employed; more typical in a distressed labor market than one that is “booming.” This is despite a steep drop in the number of unemployed women since 2008, meaning a rising share of unemployed women who find a job in the next month. The drop-off of women’s labor force participation is not from a big rise in marriage and balancing joint income decisions; the share of women living alone or heading households without an adult male present is rising.

The Fed needs to keep this in mind when deciding what does returning to full employment mean. Will it assume that wages should stay low, and we can be satisfied with fewer women in the labor force? It would hurt our economy by defining a full employment with the best educated part of the potential labor force sitting at home; that would represent a permanent shift downward in America’s economic growth since it means a smaller labor force compared to pre-2000. Full employment must mean a return of prime working-age women to active labor market participation. Full employment should mean full employment for all; not some.

William Spriggs serves as Chief Economist to the AFL-CIO, and is a professor in, and former Chair of, the Department of Economics at Howard University.