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Wednesday, 26 February 2014

Austrian Economist Dr Pat Gunning on U.S. Job Creation

In a discussion in the American Economics Interest Group on Linkedin, a participant pointed out,
"We have been producing on average about 175,000 jobs a month for the last five years. We need to produce about 150,000 a month just to absorb new entries into the work force. So really job growth hasn't 'slowed', it just hasn't gone anywhere".
 I thought Dr Pat Gunning, an Austrian economist, answer to this statement was excellent (my bold),
175,000?, 150,000? Are all workers and jobs alike? I would suggest stepping away from macroeconomics and thinking about the "unemployment problem" microeconomically. Real gaps between the willingness to work and the willingness to hire are due to the failure of wages in each specific labor market (there may be millions of these) to adjust. This gap always tends to close unless the government intervenes to artificially keep wages high.
Of course, unemployment statisticians cannot measure the millions of gaps. They deal in aggregates.
The gaps of which macroeconomists write are gaps between (1) what they predict, without economic theory, to be possible and (2) what their statistics tell them is real. That is why their policy proposals have no basis in the economic theory of incentives. It is also one reason why the proposals typically could not work, even if the politicians agreed to adopt them. 
Wise words and food for thought for those who seldom or never think about the current relatively high US unemployment rate in such microeconomic and common sense terms.

Graph of Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons