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Jobs and Crocodiles

Jun 5, 2010 • Labor, Macroeconomic Measurement • 105 Views    No Comments

Hearing yesterday’s employment numbers, I recalled the Malaysian proverb, “Don’t think there are no crocodiles because the water is calm.” Everyone is worried about crocodiles.

Looking beneath the surface, the employment numbers could be troublesome. The water may look smooth because we added jobs; however, they primarily resulted from temporary census workers. During the beginning of May, census hiring peaked at nearly 600,000. Similarly, the good news is that the unemployment rate dropped to 9.7% from 9.9%. Still, though, the broader U-6 rate which included workers marginally connected to the labor force, worsened.

A jobs bill, also could have crocodiles lurking nearby. In a Teaching Company lecture from Professor Robert Whaples, he explained high European unemployment rates through supply and demand. Providing skills, labor is on the supply side. Meanwhile, we have businesses who hire labor as the source of demand. Whaples says that on the supply side, workers tended to be more comfortable remaining jobless because of generous and sometimes unending unemployment benefits. On the demand side, businesses were looking for fewer employees because of higher minimum wage laws and union control over the workplace. Consequently, workers in France, for example, remain unemployed longer than U.S. workers. In the United States, is the crocodile the cost of a European approach?

Maybe we need a new proverb:

“The reverse side always has a reverse side.” (Japanese proverb)

The Economic Lesson

The unemployment rate is calculated by dividing the number of people in the labor force who are actively looking for a job by the the size of the entire labor force. People are defined as being in the labor force if they are 16 or older, employed and receiving a wage or salary or unemployed but looking for a job.

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