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Understanding the Jobs Report

Jul 9, 2011 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Government, Households, Labor, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 192 Views    No Comments

Hearing yesterday’s jobs report, most people said, “No good news.” Lower wages, almost no hiring, less time on the job and 9.2% unemployment meant more worries about the economy.

These facts might provide some insight.

The output gap: Minimizing the difference between actual and potential production of goods and services will maximize job growth. A continuing 2% growth rate would leave us with 11.9% unemployment in 2020. By contrast, 6% growth would lead to a 5% unemployment rate in 2012.

Structural or cyclical unemployment: Structural believers say that the high unemployment rate is the result of too many unemployed workers who cannot fit the jobs that are available. Cyclical advocates believe that high unemployment is the result of inadequate demand from consumers, businesses, and government.  For the most effective remedy, don’t we need a specific joblessness diagnosis?

Which comes first, the jobs focus or economic growth? Should fiscal policy focus on encouraging businesses to expand which leads to more jobs? Or, should it concentrate on hiring incentives that, through consumer spending, will then fuel a recovery?

The Economic Lesson

The participation rate compares the size of the labor force to its potential total.

You might want to see who was and is in the labor force through this WSJ interactive graph. For example, 59% of all women and 62% of all men who could be in the labor force are now employed or looking for a job. 50 years ago, the participation rate for women was 38% and for men, 83%.

An Economic Question: How might participation rates relate to unemployment?

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