Tuesday, May 29, 2012

Employment Rate

In May 2012 the United States added 69,000 jobs. The headline figure everyone looks for is the Unemployment Rate, 8.2%. I think the number of jobs added is the most significant, because you can compare it to the need rather than looking at the number of people looking for work at the unemployment office. For instance the population is increasing at a rate of 260,000 people per month. Since the average family size is 2.6, there is a need for 100,000 family wage jobs monthly to just keep up with the population growth. On the other hand, 300,000 people are retiring every month. All these people have jobs. So really 369,000 new job openings occurred in May. This sounds good, but the reality is over 25,000,000 people are seeking jobs. Shouldn't the United States use the 25 million position job deficit and report how the deficit decreased? Unfortunately, in the month of May it was negative. The number of positions needed increased. The increase of a need for an additional 250,000 jobs states the problem more accurately than the fact the economy created 69,000 new positions.

Most countries calculate the rate of unemployment, but they really want to know the rate of employment. Do they calculate the complement, because it is easier? Well, in fact it is more difficult. The rate of employment can be determined from figures provided by employers, whereas the rate of unemployment depends on each individual person identifying themselves as unemployed. This is a task for the unemployed that is not clear, requires uncompensated effort and is unpleasant to one's ego. Consequently, the figures are derived indirectly through surveys or trend calculations. The result is a mixed figure without much relevance to solving the social problem. It lacks veracity or detail that can direct effective action.

Let's look at one aspect and see whether it would be more helpful if the figure originated from an employment calculation or an unemployment calculation. Let's evaluate why an employee was laid off. Both methods capture the fact the employee was laid off. Countries with unemployment agencies do try to capture why an employee was laid off, but usually to determine whether the employee qualifies for certain unemployment programs. For instance, in the United States certain employees are classified as unemployed due to the competitive forces of international trade. This may qualify them for a special  training program. The solution is directed at changing the skill set of the employee.

Whereas, if the country used an employment gathering system employers would report why they are laying off employees. This information could be used by the government to make employers more competitive and enable them to retain employees.  This is an employment collection system that allows more effective and focused employment management.

Another advantage of using an employment rate is business and industry can report deteriorating conditions to government officials before the fact. Presumably, this would allow government officials to take action before the situation became critical and irreversible. On the other hand, such a reporting system could also reveal economic bubbles where employment growth was unsustainable like the Housing Bubble in the early part of the this century. 

Using an employment rate system allows data to be collected by employer group. On the other hand, unemployment data is collected by individual and is not categorized by employer groups and consequently makes seeing the macro trends more difficult.

This prompts the question: "Why is this backwards system used throughout the world?" It is the way government is organized. Government is a reactive organization. Government is not proactive. Government responds when someone or a group brings a problem before them. Governments are not managers. Governments are judges. Governments do not create processes. They judge guilt or innocence. The result is government is reactive and therefore ineffective in maintaining employment levels or meaningful statistics.

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