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Dean Baker – How to Fight Poverty Through Full Employment

One of the most effective ways to combat poverty among current and future generations is to maintain a full employment economy. The point should be straightforward: when the labor market is strong, or “tight,” it offers increased employment opportunities for those at the bottom. Disadvantaged workers are not only more likely to find employment in a tight labor market, they are also in a better position to secure higher wages as employers are forced to compete for labor. This can allow millions of workers the opportunity to raise themselves and their families out of poverty.

We got a chance to see this story in practice in the boom of the late 1990s, when the unemployment rate fell to its lowest levels in almost three decades, settling at a year-round average of four percent in 2000, the peak year of the boom. In this period, wages rose rapidly at all points along the income distribution, with workers at the bottom of the ladder actually achieving the largest gains.

The same principle would apply today, with the gains of a tight labor market going disproportionately to the most disadvantaged. The unemployment rate for African-Americans is typically two to two-and-a-half times that of whites. This means if we can lower the unemployment rate for whites by one percentage point, it is likely that the unemployment rate for African-Americans will fall by two percentage points. For African-American teens, the ratio hovers near six to one, meaning that a one percentage point drop in the white unemployment rate is likely to be associated with a six percentage point drop in the unemployment rate for African-American teens.

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