Employment Act of 1946

What Was the Employment Act of 1946?

The Employment Act of 1946 was a piece of legislation enacted by the United States Congress that handed the federal government the responsibility of maintaining a high employment level of labor and price stability through low inflation for the U.S. economy.

These two goals are in direct conflict with each other according to economic theory because as full employment is achieved consistently over time, demand-pull inflation will occur and prices will rise.

Understanding the Employment Act of 1946

The Employment Act of 1946 was enacted by President Truman after the conclusion of World War II. During this period, hundreds of thousands of American soldiers were returning home from the war and much of the workforce was concerned about finding jobs as the economy transitioned from the production of wartime goods.

With the Great Depression still fresh in the minds of nearly all, Congress passed the Employment Act of 1946, ordering the federal government to do whatever it takes to achieve economic stability and high employment. The act's basic goal was to provide work to those seeking it and maximize production and purchasing power.

At the heart of the act was its “Declaration of Policy,” which stated: "The Congress hereby declares that it is the continuing policy and responsibility of the federal government to use all practicable means consistent with its needs and obligations and other essential considerations of national policy with the assistance and cooperation of industry, agriculture, labor, and state and local governments, to coordinate and utilize all its plans, functions, and resources for the purpose of creating and maintaining, in a manner calculated to foster and promote free and competitive enterprise and the general welfare, conditions under which there will be afforded useful employment for those able, willing, and seeking work, and to promote maximum employment, production, and purchasing power."

The Employment Act of 1946 also paved the way for the creation of the Council of Economic Advisors, an agency consisting of three economists that advise the president on economic policy. The council is charged with assisting the president in preparing the annual economic report, advising the president on certain policies, and collecting economic data and reports on the economic growth and trends within the U.S. economy.

History of the Employment Act of 1946

The act was originally introduced as the Full Employment Bill of 1945 but was revised numerous times until it reached the form that was signed into law. Before these extensive revisions, the legislation had declared: "All Americans able to work and seeking work have the right to useful, remunerative, regular, and full-time employment, and it is the policy of the United States to assure the existence at all times of sufficient employment opportunities to enable all Americans who have finished their schooling and who do not have full-time housekeeping responsibilities to freely exercise this right."

The final version of the bill removed the claim that citizens have a “right” to a job. Also removed was the acknowledgment of the importance of maintaining purchasing power—i.e., the need to keep inflation in check.

These changes came in response to opposition among certain members of the House of Representatives, who viewed the original bill as too radical and wished to produce a substitute that would “exclude the last remnants of … dangerous federal commitments and assurances (including the wording of the title), but would provide for an economic planning mechanism of some sort in the Executive and legislative branches, and for a moderate program of public works.”