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Understanding Unemployment

Aug 5, 2011 • Businesses, Demand, Supply, and Markets, Developing Economies, International Trade and Finance, Labor, Macroeconomic Measurement • 104 Views    No Comments

A Washington Post article provided some insight about unemployment by suggesting that we place all US jobs into 2 buckets:

One bucket contains firms participating in a global market. Some export goods and services. Others face competition from imports. Examples include:

  • most manufacturing
  • agricultural goods
  • minerals
  • energy
  • a “healthy chunk” of business and financial services

The other is filled with purely domestic jobs such as:

  • construction
  • transportation
  • health care
  • government
  • retailing

This takes us to income and jobs. Between 1990 and 2008, the global bucket generated more income for Americans at home because of worldwide competition and outsourcing. However, the second bucket had no income growth–only job growth.

Now, with cutbacks in construction, government, and consumer spending, the problem of stagnant wage growth and benefits in the second bucket is compounded by lay-offs.

The Washington Post article is based on a paper by Nobel Laureate Michael Spence. You also might look here for an analysis of the July jobs report.

An Economic Lesson

During May 2007, the unemployment rate was 4.4%. 2 1/2 years later (10/09), it peaked at 10.1%. Economists continue debating whether the cause is structural or cyclical. Perhaps our buckets provide another perspective.

An Economic Question: Cyclical unemployment refers to jobs lost because of less demand when the GDP grows more slowly or declines. Structural unemployment is typically caused by technological change. Which examples might you note that relate to current unemployment?

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