Friday, March 10, 2006

Who is Working and Who is Not?

Official unemployment figures for the month of January 2006 reveal that the number of employed in the United States has increased by over 243,000. This figure is substantially larger than the 125,000-150,000 that is required each month to keep the rate of unemployment steady at 4.8% of the civilian labour force.

Those who voiced concern about the strength of the economy and the above expected growth in the labour market are in effect implying that the economy is perilously close to its natural rate of unemployment, NRU. Any growth from this point runs the risk of setting loose the inflationary genie. On the other hand there is a group of economists who believe that this will not happen as long as productivity continues to increase

Even though the total number of the unemployed is 7,700,000 ( 7,300,000 officially counted as unemployed plus 400,000 that are ready to work but have not looked for a job in the last four weeks) only less than half of this number represents a drag on the economy. In a vibrant, dynamic economy up to 3% of its civilian labour force could be classified as in between jobs. Since the civilian labour force in the US is estimated to number 150,000,000 workers then this means that 4,500,000 of our unemployed are voluntarily so. This however leaves over 3,200,000 people that are involuntarily without jobs in addition to those that have been discouraged, those that can be enticed to enter the labour market and those that are currently working part time.

As you can see from the above the argument that we should sacrifice employment for the sake of a lower rate of inflation rests on shaky grounds, at least in the short run.


MES said...

well mask, i hear on the radio one day a couple of weeks ago that 1 out of 20 employees are illegal immigrants working. could u say that would have an effect on the unemployment rate?

Brian Sacher said...

The unemployment rate has increased which is good, however I do not agree with this article, there is still way to many people unemployed who are discouraged or simply gave up on working. Yes more jobs are created but do the skills that these people have satisfy these jobs? Most likely not, theres not much solutions so i dont see this problem getting much better!