BOSTON — TO the employees of Xerox Corporation, which plans to eliminate 10,000 jobs over the next three years, the economy may not appear to be near ``full employment.'' The country's 8.2 million unemployed people undoubtably would not characterize the economy this way either.
But Martin Feldstein, chairman of the Council of Economic Advisers under former President Reagan, disagrees. The unemployment rate, 6.4 percent in December, is close to the 6.1 percent rate that Dr. Feldstein regards as ``full employment.''
Feldstein, a professor of economics at Harvard University, defines full employment the way most economists do: The unemployment rate below which inflation would likely start to accelerate.
Feldstein's remarks, made earlier this month, have renewed debate over when the United States will reach full employment. Most economists agree that it is not when every worker has a job, as perhaps people would assume. But is it at 6.1 percent, as Feldstein says, or 5.5 percent, as Council of Economic Advisers member Alan Blinder argues, or at 3 percent, where Northwestern University economics professor Robert Eisner puts it?
``At either 6.1 percent or 5.5 percent, you have unacceptable waste of human resources,'' says Markley Roberts, an economist with the AFL-CIO. Too many economists are ``unreasonably scared by the bogey of inflation,'' he says. ``Full employment would [exist] if everyone who wanted a job could get a job.''
But many economists do see a direct connection between falling unemployment and rising inflation. As unemployment declines and consumer spending increases, it is easier for firms to raise prices and for employees to win higher wage gains. This pushes up inflation, the theory goes.
With each percentage point in the unemployment rate representing about 1.3 million Americans, this skirmish is more than theoretical wrangling. If the Federal Reserve believes that falling unemployment will trigger inflation, it could tighten the money supply, slowing economic growth. The target unemployment rate also affects the lengths the administration and Congress will go to promote legislation to help workers.
The Full Employment and Balanced Growth Act, passed in 1978 and better known as the Humphrey Hawkins Act, required the president to achieve a 3 percent unemployment rate for adults by 1983, an interim rate on the path to full employment. But Washington policymakers have widely regarded the act's detailed goals as more symbolic than mandatory.
Since the Truman era, when the Employment Act of 1946 was implemented, the government's definition of full employment has inched up. Beginning with 2 percent of the labor force unemployed, it reached 6.5 percent in the 1970s and 1980s, and has fallen slightly since then, says David Colander, a professor of economics at Middlebury College in Middlebury, Vt. Economists do not really know why the number has crept up, he says.
Today's debate over full employment often comes down to what takes precedence: taming inflation or pushing unemployment lower. ``One's judgment on this is subjective and political,'' says economist Max Sawicky of the Economic Policy Institute, a Washington think tank. ``The question is, is it worthwhile to trade off a 5 percent unemployment rate and have an increase in inflation from 3 percent to 5 percent?''
Carnegie Mellon University economist Allan Meltzer says the federal government and the Federal Reserve should ``target inflation, and unemployment will take care of itself.''