Business Paper 2

Introduction

The crisis of unemployment and poverty in America continues to worsen. Despite a nominal increase in jobs in recent weeks, what is not reported is what kind of jobs are being created. Manufacturing jobs, the backbone of any economy, continued to be lost for the 37th month in a row in October. For the vast majority of Americans, the days of high quality jobs with decent wages, security, and full health and retirement benefits are a thing of the past. The effect this is having in terms of unemployment, homelessness, and even hunger right here in the US is a devastating indictment of a system which places profits before human need and suffering. (Ashley, 435-78)

So although the unemployment figure dropped from 6.1 percent to 6.0 percent, the real situation is being concealed by the government's "revised" method of compiling the figures. According to a report on "Understanding The Severity Of The Current Labor Slump" by Lee Price with Julia Fungard, a number of factors must be considered in order to understand the severity of the current labor slump: (Ashley, 435-78)

The record length of time that jobs have failed to recover - Prior to the current slump, jobs had never fallen over a two and a half year period since monthly job numbers began in 1939. As of October 2003, payroll jobs had fallen by 2.4 million below the level of March 2001. The growth in the working age population since the recession began in March 2001 - Even as jobs were shrinking by 1.8 percent, the working age population (i.e., the number of people of working age) was growing by 3.4 percent. Had job growth kept up with working age population growth over that period, 6.9 million more payroll jobs would have been filled in October 2003. (Romer, 1-37)

Explanation

The effect of the "missing" labor market on the unemployment rate - The unusually prolonged loss of jobs has caused an unprecedented number of people to refrain from actively looking for work, and therefore to be excluded from the unemployment measurement. Had the labor force grown more in line with the population - as it has in past labor slumps - another 2.3 million people would have been in the labor force in October 2003. (U.S. Department of Labor Employment, 67-)

This "missing" labor force is significant because the unemployment rate would have been 7.4 percent had the 2.3 million "missing" workers been considered as unemployed.2 The 7.4 percent unemployment figure provides a better measure of current slack in the labor market than the actual unemployment rate of 6.0 percent. The 1.4 percentage-point difference reflects the people pushed to the sidelines of the labor market who can be expected to seek work again once job prospects improve. As a result, the official unemployment rate should not be expected to fall very much when the employment picture actually begins to improve. The loss of wage and salary income - Although real hourly wages have grown since the start of ...