The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Give Janet Yellen credit. The chair of the U.S. Federal Reserve is keen to use monetary policy to help get more people into good jobs. Her priority – work is more important than finance – is reflected in the subject of this week’s get-together for the world’s central bankers: “Re-Evaluating Labor Market Dynamics.” One item should be on the agenda of the distinguished guests at Jackson Hole, Wyoming: how to replace the concept of unemployment.
The suggestion may sound frivolous, but the idea of a simple measure of unemployment is tied to a wrong view of how modern economies work. The unemployment rate made sense in developed economies a century ago, when workers were men who wanted full-time jobs as soon as they finished school, and to continue until they died or retired. In that world, unemployment was easy to define – working-age men without a job.
That binary split of employed and unemployed no longer exists. Many people nowadays drift in and out of paid jobs, shifting back and forth from full to part-time work. Some move in and out of the legal economy. Transient self-employment is common. Retirement is a flexible concept. Parents and other carers sometimes balance paid and unpaid labour.
Students, prisoners or disabled people at any time could and might want to work for pay. And paid employment cannot always be interpreted as a sign of a well-functioning labour market: jobs may be precarious, ill-suited to the worker’s skills, or pay less than a living wage.