Sunday, April 7, 2013

For Economic Growth, It's All About Job Growth

Last week, the U.S. Department of Labor reported that the unemployment rate for March fell to 7.6%, from 7.7%, and payrolls had a disappointing increase of 88,000 jobs in March (190,000 was expected). Job growth occurred in professional and business services, health care, construction and hospitality, while the retail and government sectors had declines. In addition, results for January and February were revised upward.

At the same time, the labor force participation rate (the number of people in the U.S. either working or looking for work - 16 years and older) dropped to 63.3% - the lowest level since May 1979 (see chart on page 2). Also, wage growth continues to be muted.

In Europe, Eurostat reported that the Eurozone’s unemployment rate increased to 12.0%. Austria had the lowest rate at 4.8%, while Spain was 26.3%, Greece was 26.4%, Cyprus was 14.0%, France was 10.8%, Britain was 7.7% and Germany was 5.4%.

  • Regarding the U.S. - the continuing decline in the labor participation rate coupled with muted wage growth suggest that a longer-term structural change in employment and personal income trends is underway.
  • Regarding the Eurozone – until cohesion among its member countries improves, this economic structure will likely continue to be challenged.
  • More broadly - it is likely that the challenging employment market will continue to reshape debates about austerity, government debt, monetary policy and macroeconomic dynamics among policy makers.
  • Economist Joseph Stiglitz provided a plain spoken explanation of potential solutions for economic growth in his article ‘The Book of Jobs’ (Vanity Fair, January 2012) where he states: “monetary policy is not going to help us out of this mess" and he recommends a massive investment program in the U.S. focusing on 1) education - “a highly educated population is a fundamental driver of economic growth”, 2) basic research to “fuel the next spurt of innovation” such as cleaner, more efficient energy production and 3) improving “our decaying infrastructure, from roads and railroads to levees and power plants”.

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