Job in Demand for Next year, Just over a year ago in march of 2020 unemployment in the u.s spiked to 15 percent as the fallout of the coronavirus forced many businesses to close and many more to take drastic cost-cutting measures to survive the turbulent times that lay ahead.
Today thanks in part to government stimulus and a new acceptance of the status quo in the workplace this figure has fallen to six percent, which is still far higher than the 3.5 percent was hovering around before the economy shut down but it is obviously a massive improvement.
in fact today the USA is facing a completely different somewhat paradoxical problem, people are no longer struggling to find places to work… workplaces are struggling to find people reports of massive labor shortages have compelled some of the nation's largest employers to offer potential recruits $50 just to show up for a job interview.
in Australia uber is offering people a $500 bonus just to sign up as a driver and do 20 deliveries, what's more is that those same companies are having to offer higher salaries and career progression opportunities beyond the minimum wage they have typically paid to entry level employees, so this sounds like a good thing unemployment falling, wages, rising, conditions improving, what's not to like unless maybe you're a fast food franchise owner.
However these seemingly positive headlines have actually got a few economists pretty worried to understand why we need to as always look at a few things in detail and properly understand what this could all mean to the recovery of the american economy as a whole.
So why are economists concerned about people having their choice of jobs with better pay and conditions, what could this situation do to the wider economy and what is the best way to take advantage of this apparent surge in demand for new employees. This episode of economics explained is brought to you by skillshare thanks to skillshare you can learn valuable skills that will make you a marketable asset no matter what the world is doing.
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so you have probably heard the phrase full employment it gets thrown around a lot by politicians economists and it's even one of the central goals of the federal reserve bank, but the actual phrase itself full employment is a bit misleading you would be forgiven for thinking that this means zero unemployment, but it doesn't for starters that's never actually been achieved because in an economy as large as the US there is always going to be someone out of work.
What does it actually mean well economists kind of disagree on this, they all agree it is a low rate of unemployment but it will never be zero the first approximation of this is based on what is called the natural rate of unemployment, what this means is that the only people who are willing and able to work but are not currently working are either temporarily between jobs like let's say an executive taking a week off before starting a new role at a new company, or are training up to work in a different role.
Let's say a blacksmith learning to write code so they can go and work at google yeah okay extreme example but you get the point…..
This is known as frictional and structural unemployment respectively these are normally seen as the good type of unemployment or at least the type of unemployment that isn't terrible like the alternatives.
Cyclical unemployment is the one that we are normally afraid of this is unemployment caused by changes in the business cycle if an economy goes into a recession there is naturally less demand which means fewer employees are needed to meet that lower level of demand people are laid off and lose their income, so they can't afford to purchase as much which in turn reduces demand and the cruel cycle of cyclical unemployment continues.
You must quickly add before anyone corrects me in the comments section that cyclical unemployment is so core because it is caused by the short-term business cycle not because it compounds on itself like demonstrated here, that's just a nice little piece of irony that i like to point out….. Anyway this is why to try and avoid this the central bank is tasked with among other things maintaining full employment but that role can sometimes spirit odds with another responsibility of the fed which is maintaining low inflation.
There is another idea of what full employment is and it has to do with a term that you may have heard thrown around in the news recently, the NAIRU which is just an acronym for the non-accelerating inflation rate of unemployment this is the reason that economists don't want zero unemployment.
First analyzed by william phillips he found that there was a relationship between the unemployment rate and inflation notably higher levels of employment higher levels of inflation but it's not a linear relationship, sure as employment levels rise so too does inflation but it only really starts to become a problem when it passes this arbitrary point.
the NAIRU now this graph may look daunting but the actual fundamentals of this theory couldn't be more simple it's supply and demand, imagine a world with 10 unemployment it shouldn't be that difficult it was literally the world a year ago if you are the unlucky one out of every 10 that finds themselves involuntarily out of work, then you are in trouble.
Any job opening is going to have a lot of potential applicants and a lot of applicants that will be willing to work for rock bottom wages just so they can get a job at all, it's worth mentioning that this also really sucks for the frictionally and structurally unemployed as well, because they might be training up for or transitioning into jobs that don't exist anymore.
Ultimately the labor market is a market like any other and more people looking for fewer jobs means that there is more supply less demand and ultimately lower wages, now the opposite is also true but to a more extreme degree, say your unemployment drops below this NAIRU level then we will have a situation where almost everybody that wants a job, has a job, if you are an employer and you post a job opening you might find that literally nobody applies.
So maybe you have to offer a slightly higher salary or poach people from other workplaces with attractive signing bonuses or you know maybe even pay people fifty dollars just to show up for a job interview, now a little bit of this is great…..
it gives the working pool of labor a bit more negotiating power it means that people don't need to work 80 hours a week in a coal mine or deal with environments that will obviously impact their long-term health, but too much can cause a problem there is certainly a good argument for a higher minimum wage, but what happens if restaurants need to turn around and start paying all of their employees 15 20 40 100 an hour ?
Just to attract enough staff to make sure the operation runs, eventually the salary expenses of these businesses would just make it infeasible for them to keep on running, which means they will close down which reduces the supply of tasty burgers in circulation which means that the burger places that are left in operation will get to charge a premium for their products been sold in the burger market that they have now cornered.
Of course this is an extreme example but even gradual increases in income can lead to gradual increases in the price level of goods and services, if a company needs to pay a plumber $30 an hour to get them to show up to work they're going to be passing that cost along to you and on the other side of that equation if that plumber is looking for a brand new truck to celebrate his pay rise.
He's going to be competing against every other plumber that just got a pay rise and wants to buy themselves a brand new truck, now i know what you might be thinking oh mr economics man just wants to complain about inflation again, didn't you make An Articles on this last month and well while that is half true there is more to this whole problem than just inflation alone.
Beyond that this is ignoring the glaring elephant in the room which is that unemployment is still almost twice of what it was before the pandemic, if this wasn't a problem back then why is it a problem now the short answer is that the NAIRU has shifted but that only makes sense when you address the bigger picture you are never going to see a politician campaign on a platform of increasing unemployment and offering less jobs to less americans for a few reasons.
Obviously it would be incredibly unpopular with 99% of the people who either don't know what NAIRU is or think at the very least it's a tiny micro nation in the south pacific, but beyond that increasing unemployment is very easy….
it's as simple as cancelling a few government projects the challenge is more so in keeping unemployment as low as possible without racking up too much debt or inflation, the government tries very hard to get this figure as low as possible because it is politically popular this is either done directly through employing people in government roles as government contractors or indirectly by generally running an expansionary fiscal budget.
Where not a lot of money is tax but a lot of money is given away the problem with this second option is that it can create a whole new category of unemployment that doesn't get nearly as much attention as these other ones, institutional unemployment :
This is unemployment that is caused by institutional policies that impact the labor market this can be anything from a mine getting shut down because the workers threatened to unionize to companies refusing to hire workers of a particular race or gender, but more commonly it has to do with government intervention in markets…. There is an argument being made by a broad group of economists today that the measures taken to protect people from the direct economic repercussions of the coronavirus were too generous.
Unemployment insurance combined with supplements of up to three hundred dollars per week compounded by multiple stimulus checks have meant that people are making more money by not working, than they would be making in the industries which are hurting, when it's also considered that going to work also includes hidden costs like paying for transport to and from the workplace child care eating out more because you don't have time to cook at home then this decision makes logical fiscal sense.
What's more is that there is still a global pandemic going on given the choice between staying home or working in food services where you'll come into contact with hundreds of people in a given day, i think i would know which choice i would take, i know this is anecdotal but i would like to think i'm the type of guy that values a solid day's work and normally given this decision i would choose to earn my own money rather than take assistance.
Even if the earning potential was the same but given the context of the world that we live in right now you would need to pay me a pretty healthy premium for taking that risk, now this entire process effectively means that the non-accelerating inflation rate of unemployment that we were studying earlier can shift, and indeed it shifts all the time….
Following the recession in 2008 this race spiked up by one percent to just under six percent, of course that never really became a problem because unemployment at this time was hovering over eight percent, but today we are in a potentially worse economic situation than we were back then given that there are real material constraints on the economy.
There are not enough computer chips not enough lumbar not enough cars and not enough of basically everything we use to run an economy, which is kind of to be expected let's not ignore the fact that we are still in a crisis right now, it surely makes sense that unemployment should be higher and the relentless obsession by governments to drive this figure to be as low as possible.
is driving it beyond where it actually should be in a properly functioning economy which is giving us all of the weirdness that we are seeing in the world right now, economists support this theory primarily those that subscribe to the austrian school of economics we'll also point out that these distortions will cause knock-on impacts in the economy, that will end up doing more harm than good.
If that plumber from earlier who is currently earning thirty dollars an hour has to go back to working for $20 an hour he might default on the payments for that new ford f-150 he overpaid for, which causes more issues than these temporarily higher wages solved.
a Rough analogy would be that covert hit the global economy like an unexpected breakup, now there are two ways to deal with a breakup…. You can realize that this is gonna suck for a while take some steps to try and make yourself feel better and get over it or you could go on a bender which will almost totally eliminate the pain and suffering in the short term but inevitably make things much worse in the long term.
it must be noted that not all economists agree with this rather pessimistic view some argue that this is simply a systematic issue that will sort itself out over time, this also does make sense when you look at the figures as we saw at the height of the pandemic millions of people were laid off in a very short period of time.
in the months since then most people have had to find alternatives to support themselves this could be anything from going back to school to retrain to living off government welfare to simply just getting a new job, life finds a way so to speak fast forward to today and those same businesses are reopening and looking to fill out their staff base all over again only to find that all the people they'd let go had found these other arrangements.
Job openings right now are at the highest point in history and sure some of the people that were laid off will either be happy or be forced to come back to work, but some will end up sticking with the alternatives that they have found during the lockdown over time this will even itself back out new people will join the workforce and eventually there won't be as many businesses that need to hire staff to reopen.
Everybody lives happily ever after so to speak, but what can you do to capitalize on all of this well now is the perfect time to start shopping around for a new job with a better salary, for the first time in a long time it is the employers fighting over the employees rather than the other way around. Studies suggest that employees who stay with their companies for longer than two years get paid 50 percent less on average than their peers who are more happy to job hop for a promotion.
a pay rise or just better conditions getting the best value for your hard work is always good advice, but maybe never more so than right now…. of course this process is made even easier by being able to leverage an ever-expanding set of valuable and marketable skills, like the ones that you can learn with skillshare.
Every applicant we went through just didn't have the skills that we were looking for but obviously we did end up finding someone who learned everything that they know online with skillshare, this is a good job that can be done from anywhere in the world and it goes to show the power of having an in-demand skill that is taught by an engaging teacher who truly knows their craft and uses it themselves in the real world.