[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Chapter 24
THE FULL-
EMPLOYMENT
MODEL
∂
Every year, about 1.7 million Americans enter the labor force. Creating jobs
for these workers is critically important for the health of the economy and
for the general welfare of society. With so many new workers each year, it
may seem amazing that market economies like that of the United States are able to
create employment opportunities for almost all who seek them. Between 1955 and
2000, for example, the American labor force grew by 117 percent, almost 76 million
workers—and incredibly, the number of jobs also grew by 117 percent. This remarkable
ability of the economy to generate millions of new jobs is the result of competitive
markets. No government official can calculate where to place the millions of
new workers who are expected to enter the labor force over the next decade. But
past experience makes us confident that somehow, somewhere, the economy will
create jobs for them. The economic theories we explore in this and the next four
chapters help explain the ability of market economies to create jobs.
Though the economy does generate jobs, the process does not always occur
smoothly—in some years, job growth slows and unemployment rises; in other years,
when the economy is expanding, the opposite happens. But over the long run, jobs
are created to employ those who want to work.
To understand how this happens, we focus on the aggregate behavior of the
economy—on movements in such macroeconomic variables as total output, interest
rates, and average wages—when resources are fully used. We will also focus on
a period of time that is long enough so that all wages and prices have had time to
adjust to shifts in supply and demand. Many wages and prices do not respond rapidly
to such changes, a factor that will play an important role when we turn to economic
fluctuations in Part Seven. Eventually, however, wages and prices do adjust
to bring supply and demand into balance. By using a time horizon that is long
enough for these adjustments to occur, we will gain insights into many important
macroeconomic phenomena. For example, the framework we develop in this
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