Joblessness – the Underbelly of the Whole Equation

I have written often on this blog about the ongoing challenge of joblessness.  Let me point to a statistic, an article, and a book to ponder.

First, the statistic.  The misery index is at a 26 year high: Huffington Post’s Real Misery Index.

The index for March/April 2010 was 33.1, a slight increase from 33.0 in February, representing another new high in the 26 years going back to 1984 analyzed by HuffPost.

Next, the article:  The Real Misery Index April 2010: Underemployment Woes Lead To Two-Tier Economy by Marcus Baram.  In this article, which explains the way they arrive at the misery index number, we read this:

Lynn Reaser, the incoming president of the National Association of Business Economists, calls it a two-tier economy, with those who are employed doing better amid rising consumer confidence while the unemployed suffer.

And, now, the book.  I have only read the review from Business Week.  The book is How the Economy Works:
  Confidence, Crashes and Self-Fulfilling Prophecies by Roger E.A. Farmer.  Here are two key paragraphs from the review regarding the jobs issue:

The core of How the Economy Works deals with Farmer’s theory for why unemployment persists. There is no well-functioning market for matching unemployed people with jobs. Ideally there would be special employment agencies that coordinate the market. These hypothetical agencies would pay job seekers and employers for listing exclusively with them and then get paid for making successful matches. Such agencies don’t exist because people, unlike wheat, can refuse to be matched if they don’t like the buyer.

Strange things happen in the absence of a well-functioning labor market, Farmer says. Even when there are lots of unemployed workers, employers don’t get any price signal telling them to divert resources to their HR departments and increase hiring. So unemployment stays high. Of course, employers won’t hire if there’s no demand—but there will be demand if everyone’s working. Farmer’s point is that any given level of joblessness, low or high, can be stable and persistent. And the best way to sustain a low-unemployment equilibrium is to use the Federal Reserve as a giant trampoline for the Standard & Poor’s 500-stock index.

The review says that this section of the book is the hardest to understand.  And Farmer tried to write an “accessible” book, and acknowledged that this is a hard concept to grasp.  But here’s what I think I know:  when people don’t work, they don’t buy.  When people don’t buy, there is no growth – there is fear.  And when there is fear, there is retrenchment.

In one part of my life, presenting books on social justice and poverty, I have learned that research has come to a simple conclusion about homelessness.  The solution to homelessness is…a home.  And providing homes for the homeless is actually more cost effective to society than not providing such people homes.  For a great read re. this, one that puts a name and a face to this issue, read Malcom Gladwell’s Million Dollar Murray).

So, maybe we could come to this simple conclusion – the solution to joblessness is jobs.  And the more jobs provided, the more money circulates throughout the economy, financing the more jobs that have been provided and then will be provided.

Sounds like the chicken and the egg, doesn’t it?



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