Monday, January 17, 2011

In a nutshell--an economists view of why employment is not increasing as it perhaps should be...

The economy is officially in recovery as measured by GDP growth and the increase in employing available productive capacity to produce goods and services---also known as Capacity Utilization. However, contrary to past economic recoveries, employment opportunities that come with utlizing productive capacity have not emerged. This summation of the over-arching reasons for employment stagnation is provided by economist Mark Thoma...Make sense to me...
Read the whole thing and look at the graphs provided HERE
""Why will the recovery of employment take even longer than the recovery of output? A combination of factors is at work. First, firms do not want to make a commitment to hiring new workers until they are sure the recovery is solid, and uncertainty about the strength of the recovery near turning points leads firms to delay in hiring new workers.

Second, during a downturn it's natural to reorganize production. As firms lay workers off, they reassign tasks to the workers who remain. Then, as things improve they install labor saving equipment in an attempt to cut costs. This reassignment of tasks and the replacement of labor with software, robots, and other machinery lead to a delay in the recovery of employment.

The third reason for a delay is that firms do not want to let their highest productivity workers, or workers that require costly training, go in a recession even if there's not enough work for them to do. Since these firms will not hire new workers until this excess capacity is used up, this also delays the time until new workers are hired.

Fourth, when there is a considerable amount of structural change – leading to large numbers of workers who must be retrained and/or relocated as they move out of industries such as housing and finance – labor markets will have difficulty recovering....""
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