What do the unemployment numbers mean? There is a weekly jobless report that comes out and the markets react to this report in various ways. Often quite violently.
First a little background: Unemployment occurs when someone is available and willing to work, but currently does not have a job. It tends to be a basic supply and demand issue. If there are less available jobs than there are workers to fill them, then unemployment will exist. Classical economics theorizes that even if there were enough jobs for everybody, unemployment would still exist.
This is because the labour force and the job market are mismatched. Usually by needs and skills. We refer to this as frictional unemployment. Once again, there are many arguments on who is right when it comes to unemployment. Economists distinguish between several types of unemployment: cyclical, frictional, structural and classical. Each of these has an underlying reason as to why unemployment exists.
But currently we have extremely high unemployment. The national average is 10%. In some places it is close to 20%. Then you will hear people talk about “real” unemployment and say it is significantly higher because of various reasons. Small business owners. Furloughed (people who are temporarily laid off) individuals and people who elect to not go back to work after being laid off.
My view is that the jobs that are lost are not coming back. While the economy was booming, there were many superfluous jobs created. How many jobs were created just because there was money to burn and not because it was efficient? As the economy began to contract (recession), we began to see companies, in order to maintain profits, begin to slash jobs.
In addition to the jobs that were “extra” and that actually decreased the bottom line in good times, there were jobs that became obsolete. Either with the advent of new technology, or with restructuring business. Streamlining business is the buzzword of the century and most businesses are taking it to heart. Do more with less.
So, in effect part of the unemployment number is that there are people out there who have obsolete skills. The jobs they had were in fact destroyed, likely never to come back. Generally what happens is that innovation breeds new jobs. The argument that technology eliminates jobs is accurate. But there is a missing piece.
Traditionally, new jobs are created when the old ones go away. There is simply a lag to when this occurs. How long it takes has never been definitively answered. It may be that it varies with each recession. A recession represents a cleaning out of inefficiencies. That new jobs will be created is scant comfort to the millions out of work right now.
But unemployment is not the death knell of our economy or the spark the ignites the precipitous decline into a Depression. It is hard to look at unemployment as a good thing, but the economy will be strengthened in the long run by creating new, more relevant jobs.