Saturday, January 1, 2011

How unemployment creeps up

The 2000-2010 decade was the first decade in American history where the country went out the decade with less jobs than it went in.  The population grows by about 1% a year, the population grew by somewhere around 28 million people over the decade.

In the year 2000 America had 280 million people and about 140 million active in the labour force.  For a labour force participation rate of 50%.  In the year 2010 America had ~310 million people, but the labour force had declined to 138 million.  If the labour force participation rate had remaned at 50%, there would be ~155 million active in the labour force.  So this difference amounts to 17 million jobs.  In fact because the country grows by about 3 million each year, at a 50% labour force participation, about 125,000 new jobs must be created each month to stay even.  17 million jobs is 12% of the current labour force of 138 million.

That works out to 1.2% of jobs lost each year.  For a random economically active individual, the chances of you becoming out of work this year are 1 in 100, if things continue at this pace.  And it probably isn't even that high.  Corporations and governments usually reduce their workforce through attrition.  As people retire they do not replace the person.  As people leave for other opportunities, they do not replace the person.  When people die or become disabled, they do not replace the person. 

So where we are really seeing the unemployment is the young, coming out of school.  And in many western cities the unemployment rate among 18-25 year olds not in school is catastrophically bad.  It was reported in New York City, the rate was 50%. 

 

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