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It''s full employment, stupid: even a slight rise in unemployment clobbers the bottom half.

Article Excerpt
NEWLY RELEASED DATA ON INCOME AND POVERTY suggest that the recent economic downturn hit lower-income families disproportionately. The latest Census Bureau report found that poverty began rising and median family income started falling in 200l, confirming what many of us have always known: The key to improved living standards for the bottom half was, and is, full employment.

After tumbling through the latter half of the 1990s, the unemployment rate hit a 30-year low of 4 percent in 2000. With the onset of recession, it reversed course and climbed to 4.8 percent in 200l.

Now, 4.8 percent doesn't sound that bad. Most economists used to think that you couldn't get below 6 percent unemployment without triggering dangerous inflation. But from the new data we learn that the 0.8 percent increment in unemployment led to higher poverty, less income for the typical middle-class family and a return to the 1980s and early 1990s pattern of highly unequal income growth.

In one sense, this reversal of economic fortune isn't entirely unexpected; that's what recessions do. But the new information stands in stark contrast to the impressive progress of the latter 1990s. During that boom, as we stress in our latest edition of The State of Working America, gains were broadly shared for the first time in decades.

The lesson is not just that booms are great and recessions are lousy. It's that broadly shared prosperity requires full employment. During the boom years of 1995-2000, everyone gained some but the most affluent gained more. Yet with a mild increase in unemployment in 2001, everyone lost except...