Sunday, October 25, 2009

Employment and Oversupply

Economists are puzzled as to why job growth has slowed, citing everything from higher health care costs, to higher productivity, to Chinese currency manipulation.

"The answer is, we don't know," said Tim Bartik, a liberal economist with the Upjohn Institute for Employment Research in Michigan who is proposing a tax credit for employers who hire new workers

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Is negative job creation really that puzzling? If stimulus is targeted at oversupplied industries, the best case scenario is jobs do not fall in those industries. The best example is all the "Stimulus" focused on housing. Housing employment has remained flat, overall jobs are down, and housing vacancy rates continue to grow.

Other examples including providing more, "Stimulus" to state and local government. In NJ, the state population has been flat this decade but state government employment has grown. What are all those additional state employees producing?

So in the end if the government spends a few trillion more you can get positive GDP, but please do not be surprised by lower employment.

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