The Unemployment Economy
One Hundred and Sixty-Two Thousand jobs; that is how many new jobs the United States economy added in one month, March 2010. That certainly sounds impressive, however, a closer examination of the numbers reveal one of the troubling aspects of this economic recovery.
Since the start of the economic recession of 2007, 2008 and 2009, the US economy has lost more than 8 Million jobs. In addition, the normal rate of population growth dictates that the economy should have gained 2.7 Million new jobs to keep pace. This leaves the US economy roughly 11 Million jobs short of a “normal” rate of unemployment—this number is worse if you count the number of part-time workers looking for full-time work (source The Wall Street Journal April 12, 2010)
If the economy was to quickly correct and begin generating new jobs at an above average pace of 300,000 jobs per month, it would take nearly eight years to gain enough jobs to return to employment levels of 2006. Given the current level of unemployment and the economic headwinds created by fiscal and monetary policies of the past three years, it is difficult to see that we could experience such a tremendous recovery.
Given the data, we are likely to see an economic recovery that fails in the incremental creation of new jobs of the order and magnitude that returns to the US economy to a reasonable level of employment. In fact, the recovery of 2010 looks to be a true unemployment recovery.
In an economic recovery that fails to generate adequate employment levels, companies increase earnings through increases in productivity rather than expansion of employment. Productivity increases are a result of a more-efficient use of capital and an application of technology, processes and procedures that generate profit gains without a large number of additional employees.
Unfortunately, because of the productivity gains and the skills of the long-term unemployed, many of the jobs that have been lost will never come back in the United States if at all. This is supported by the fact that the current unemployment rate for college-educated graduates is only 5.0% while the unemployment rate for those without a high-school degree is 15.6%.
A large population of unemployed quickly becomes a drag on an economy. Unemployed populations spend less, pay less in taxes (or negative taxes in the United States through welfare) and are not able to contribute to the growth, expansion or production gains of an economy—the unemployed become a real, unused resource of the economy. Financial resources are needed to artificially support the unemployed and the return on those resources is negative.
As we have seen throughout economic history, achieving a high rate of employment is a key to a long-term, sustainable economic expansion. A full expansion is likely not achievable without a high level of employment. A recovery during times of weak employment gains is ultimately a weak economic recovery.
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