Some Numbers Behind The Unemployment Numbers

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I am a numbers person, but when newscasters start telling me how many jobs were created and how many jobs were lost every month, my eyes glaze over.  Just give me the unemployment number, and I am happy.  Unfortunately, the number I want is not the number that tells the whole story.

On May 16th, the Wall Street Journal posted an article by Edward P. Lazear, chairman of the President's Council of Economic Advisers from 2006-2009, a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow.  In the article, Professor Lazear explains why the job market seems so dismal despite reports that hundreds of jobs are being created every month. 

The Professor points out:

"First, the increase in job growth that occurred over the past two years results from a decline in the number of layoffs, not from increased hiring. In February 2009, a month during which the labor market lost more than 700,000 jobs, employers hired four million workers. In March 2011, employers hired four million workers. The number of hires is the same today as it was when we were shedding jobs at record rates."

What he is saying here is that the number of people being hired is not increasing, it is remaining the same.  When I read this, I thought it was good news that there are fewer layoffs now than in February 2009, when we were in the heart of the recession.  However, the article points out that generally speaking layoffs occur early in a recession and are not necessarily an indication of anything.  The article further points out that at any point of the business cycle, even during a recession, workers are constantly being hired to replace workers who have left jobs or retired.  This does not represent an expansion or contraction of the workforce--it is simply a replacement of current workers.  I would like to add to that concept the idea that the baby boomers began turning 65 this year, and many of them have retired and will be retiring in the near future.

The article also points out that in a healthy American economy, American firms hire about 5.5 million workers per month.  We have not seen that number since early 2007.  The author states that one of the indicators of a healthy economy is a high levels of hiring, and high levels of separations. 

The article further states:

"No one would suggest that layoffs are good for workers, but what is good is a fluid labor market, where workers and firms constantly seek to produce better products and to find more efficient ways to produce them. High labor market churn is a characteristic of a strong economy. It generally means that workers are moving to better jobs in growing sectors that pay higher wages and away from declining sectors that pay lower wages."

The article concludes with a prescription for a robust American labor market: "low taxes on capital investment, avoidance of excessively burdensome regulation, and open markets here and abroad."  America is at a crossroads--we can stay on the road we are on and accept 9 percent unemployment as normal or we can follow the suggestions of Professor Lazear and go back to the 6 percent unemployment numbers we enjoyed during the George W. Bush administration.  All of this will be decided in the next electoin.

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This page contains a single entry by Granny G published on May 27, 2011 1:18 PM.

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