Employment Act
Encyclopedia
The Employment Act of 1946 ch. 33, section 2, 60 Stat. 23, codified as , is a United States federal law. Its main purpose was to lay the responsibility of economic stability of inflation and unemployment onto the federal government. The act did not favor Keynesian policies; indeed, there were few policy consequences because as Stein (1969) notes, "The failure to pass a 'Full Employment Act' is as significant as the decision to pass the Employment Act." The Act created the Council of Economic Advisors, attached to the White House, which provides analysis and recommendations, as well as the Joint Economic Committee
. In practice the government has relied on automatic stabilizers and Federal Reserve policy for macroeconomic management, while the Council of Economic Advisers has focused primarily on microeconomic issues.
was finally over. A remarkable burst of economic activity and full employment came during the war years (1941-45). Fears of a postwar depression were widespread, since the massive military spending was ending, the war plants were shutting down, and 12 million soldiers were coming home. Congress, fearful of a return to depression, sought to establish preemptive safeguards against economic downturn.
The White House relied on Keynesian economic theory
to develop its strategy. The theory, set forth by economist John Maynard Keynes
and his American disciples such as Alvin Hansen
at Harvard, contends that unemployment is caused by insufficient aggregate demand relative to the possible aggregate supply generated by full employment
. Swings in aggregate demand create a phenomenon known as a business cycle that leads to irregular downsizing and hiring runs, causing fluctuations in unemployment. Keynes argued that the biggest contributor of these shifts in aggregate demand is investment.
in the Senate as S. 380. The bill represented a concerted effort to develop a broad economic policy for the country. In particular, it mandated that the federal government do everything in its authority to achieve full employment, which was established as a right guaranteed to the American people. In this vein, the bill required the President to submit an annual economic report in addition to the national budget. The report, designated the Economic Report of President, must estimate the projected employment rate for the next fiscal year, and if not commensurate with the full employment rate, to mandate policies as necessary to attain it.
There was strong opposition to the wording of the bill from the business community, which feared government regulation, deficit spending and runaway inflation. Conservative Congressmen led by Republican Senator Robert A. Taft argued that business cycles in a free enterprise economy
were natural and that compensatory spending should only be exercised in the most extreme of cases. Some also believed that the economy would naturally drive toward full employment levels. Others believed that accurate employment level forecasting by the government was not practical or feasible. Some were uncomfortable with an outright guarantee of employment.
The Conservative Coalition
of Northern Republicans and Southern Democrats controlled Congress. The bill was pressured to take on a number of amendments that forced the removal of the guarantee of full employment and the order to engage in compensatory spending. Although the spirit of the bill carried through into the Employment Act of 1946, its metaphorical bite was gone. The final act was not so much a mandate as it was a set of suggestions.
The result was a bill that made the general goal of full employment, full production, and stable prices. President Harry S. Truman
signed the compromise bill into law on February 20, 1946.
The act requires the President to submit an annual economic report within ten days of the submission of the national budget that forecasts the future state of the economy, including employment, production, capital formation, and real income statistics. This Economic Report of the President
, as the act names it, sets forth future economic goals of the country and offers suggestions on how to attain it, a marked compromise from the original bill's focus on compensatory spending.
The act creates the Council of Economic Advisers
, an appointed advisory board that will advise and assist the President in formulating economic policy. It also creates the Joint Economic Committee, a committee composed of both senators and representatives instructed to review it as the government's economic policy at least annually.
, one of the changes in the future of 2024.
United States Congress Joint Economic Committee
The Joint Economic Committee is one of four standing joint committees of the U.S. Congress. The committee was established as a part of the Employment Act of 1946, which deemed the committee responsible for reporting the current economic condition of the United States and for making suggestions...
. In practice the government has relied on automatic stabilizers and Federal Reserve policy for macroeconomic management, while the Council of Economic Advisers has focused primarily on microeconomic issues.
Impetus
By 1940 depressionGreat Depression in the United States
The Great Depression began with the Wall Street Crash of October, 1929 and rapidly spread worldwide. The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth and personal advancement...
was finally over. A remarkable burst of economic activity and full employment came during the war years (1941-45). Fears of a postwar depression were widespread, since the massive military spending was ending, the war plants were shutting down, and 12 million soldiers were coming home. Congress, fearful of a return to depression, sought to establish preemptive safeguards against economic downturn.
The White House relied on Keynesian economic theory
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
to develop its strategy. The theory, set forth by economist John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
and his American disciples such as Alvin Hansen
Alvin Hansen
Alvin Harvey Hansen , often referred to as "the American Keynes," was a professor of economics at Harvard, a widely read author on current economic issues, and an influential advisor to the government who helped create the Council of Economic Advisors and the Social security system...
at Harvard, contends that unemployment is caused by insufficient aggregate demand relative to the possible aggregate supply generated by full employment
Full employment
In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....
. Swings in aggregate demand create a phenomenon known as a business cycle that leads to irregular downsizing and hiring runs, causing fluctuations in unemployment. Keynes argued that the biggest contributor of these shifts in aggregate demand is investment.
Compromises
The original bill, called the Full Employment Bill of 1946, was introduced in the House as H.R. 2202 and introduced without change by Congressman Wright PatmanWright Patman
John William Wright Patman was a U.S. Congressman from Texas in Texas's 1st congressional district and chair of the United States House Committee on Banking and Currency .-Early life:...
in the Senate as S. 380. The bill represented a concerted effort to develop a broad economic policy for the country. In particular, it mandated that the federal government do everything in its authority to achieve full employment, which was established as a right guaranteed to the American people. In this vein, the bill required the President to submit an annual economic report in addition to the national budget. The report, designated the Economic Report of President, must estimate the projected employment rate for the next fiscal year, and if not commensurate with the full employment rate, to mandate policies as necessary to attain it.
There was strong opposition to the wording of the bill from the business community, which feared government regulation, deficit spending and runaway inflation. Conservative Congressmen led by Republican Senator Robert A. Taft argued that business cycles in a free enterprise economy
Economic system
An economic system is the combination of the various agencies, entities that provide the economic structure that defines the social community. These agencies are joined by lines of trade and exchange along which goods, money etc. are continuously flowing. An example of such a system for a closed...
were natural and that compensatory spending should only be exercised in the most extreme of cases. Some also believed that the economy would naturally drive toward full employment levels. Others believed that accurate employment level forecasting by the government was not practical or feasible. Some were uncomfortable with an outright guarantee of employment.
The Conservative Coalition
Conservative coalition
In the United States, the conservative coalition was an unofficial Congressional coalition bringing together the conservative majority of the Republican Party and the conservative, mostly Southern, wing of the Democratic Party...
of Northern Republicans and Southern Democrats controlled Congress. The bill was pressured to take on a number of amendments that forced the removal of the guarantee of full employment and the order to engage in compensatory spending. Although the spirit of the bill carried through into the Employment Act of 1946, its metaphorical bite was gone. The final act was not so much a mandate as it was a set of suggestions.
The result was a bill that made the general goal of full employment, full production, and stable prices. President Harry S. Truman
Harry S. Truman
Harry S. Truman was the 33rd President of the United States . As President Franklin D. Roosevelt's third vice president and the 34th Vice President of the United States , he succeeded to the presidency on April 12, 1945, when President Roosevelt died less than three months after beginning his...
signed the compromise bill into law on February 20, 1946.
Overview
Conservatives removed all of the Keynesian markers from the final bill, so that it merely encourages the federal government to "promote maximum employment, production, and purchasing power."The act requires the President to submit an annual economic report within ten days of the submission of the national budget that forecasts the future state of the economy, including employment, production, capital formation, and real income statistics. This Economic Report of the President
Economic Report of the President
The Economic Report of the President is a document published by the President of the United States' Council of Economic Advisers . Released in February of each year, the report reviews what economic activity was of impact in the previous year, outlines the economic goals for the coming year , and...
, as the act names it, sets forth future economic goals of the country and offers suggestions on how to attain it, a marked compromise from the original bill's focus on compensatory spending.
The act creates the Council of Economic Advisers
Council of Economic Advisers
The Council of Economic Advisers is an agency within the Executive Office of the President that advises the President of the United States on economic policy...
, an appointed advisory board that will advise and assist the President in formulating economic policy. It also creates the Joint Economic Committee, a committee composed of both senators and representatives instructed to review it as the government's economic policy at least annually.
Amendment
Unemployment levels remained fairly steady after the passing of the act. After 1970, however, the economy began to fluctuate and unemployment rates rose again. The same fears that motivated the creation of the act in 1946 precipitated an amendment in 1978, entitled the Full Employment and Balanced Growth Act. This act was identical in spirit to the original Full Employment Bill of 1945, providing a guarantee of full employment and economic means to do so.In popular culture
In the Star Trek: Deep Space 9 episode Past Tense, the Employment Act was repealedRepeal
A repeal is the amendment, removal or reversal of a law. This is generally done when a law is no longer effective, or it is shown that a law is having far more negative consequences than were originally envisioned....
, one of the changes in the future of 2024.
Further reading
- Norton, Hugh S. The Employment Act and the Council of Economic Advisers, 1946-1976 (1977)
- Weidenbaum, Murray. "The Employment Act of 1946: A half century of presidential policymaking," Presidential Studies Quarterly, Summer 1996, Vol. 26 Issue 3, pp 880-85