Unemployment Unabated

The unemployment rate is a lagging economic indicator. When the economy enters a downturn, employers are reluctant to let go of workers. As the economy recovers wary employers, the pain of releasing workers still fresh, are slow to re-hire until they are certain the economy is in recovery.

The unemployment rate is also affected by the fact the only workers who are actively looking for employment are counted. As the economy picks up, more formerly discouraged workers enter the labor pool. Ironically, a recovering economy, in the short term, can face increased unemployment rates.

Despite these caveats, the current monthly increase to unemployment to 9.8% is worrisome, and suggests that current economic policies are not sufficient. Unemployment rates seems flat with little signs of significant reductions in the near future. Current employment rose rapidly in 2009 about has remained stubbornly high for about two years. Usually, when the unemployment rate rise quickly, it retreats quickly. This is not the case for this recession.

Consider the included graph. It represents the monthly unemployment rate for the current recession and the last recession with similar unemployment rate in the early 1980s. We have shifted the time so the month 17 represents the peak unemployment rate. The current recession has shown a flat unemployment rate, while at this point in the recession of the early 1980s, the unemployment was rapidly falling.

By most measures, the recession of the early 1980’s occurred under less favorable economic conditions. Inflation was at double digit levels. To reduce inflation the Federal Reserve had to impose double-digit interest rates. Currently, both inflation and interest rates are at historically low rates. The economy ought to be primed for a much faster rebound than occurred in the 1980’s.

The difference is that in the 1980’s recession, President Ronald Reagan slashed taxes and tried to easy regulatory restraints on growth. By contrast, the current Administration simply spent nearly $1 trillion dollars and focused its attention to health care reform. Whatever, the merits of the Democratic health care changes, its institution during a recession has introduced so much uncertainty that hiring for small businesses has been frozen.

If newly elected Republicans can manage to keep tax rates low, and at least mitigate the worst effects of Obama’s health care legislation, they may help the economy sufficiently recover that it will insure an President Obama re-election. If the Left has its way, and tax rates increase and spending continues unabated, and “Obamacare” is implemented unchanged a one-term Obama presidency will probably be secured.

Leave a Reply

You must be logged in to post a comment.