South-Western College Publishing - Economics  
The Circular Reasoning of Job Growth
Subject Job Growth
Topic Employment, Unemployment, and Inflation
Key Words

Employment, Unemployment, and Job Creation

News Story

U. S. job growth in November was insufficient to keep up with average increases in the adult population. The economy added 112,000 jobs in November, but needs to add about 150,000 a month just to keep up with the growing number of job seekers that come with a growing population.

Unemployment actually inched down slightly to 5.4 percent. This was a .1 percent drop from the month before. Still, the United States has at least 200,000 fewer jobs than it did before the recession began. During this same period, the adult population has grown by approximately four billion people. If not for discouraged workers-those workers who have looked for work without success and dropped out of the "actively seeking employment" labor market--the unemployment rate would be higher than currently reported.

"The economy is adding jobs, but not at a feverish pace," said Richard Yamarone, chief economist at Argus Research, an economic research firm in New York. "Economic growth is not expanding at a pace that can engender stellar job growth, and I think you have to get used to these kinds of numbers."

Average hourly wages rose only 1 cent in November, and the October figure was revised downward. When charted over the last year, wages have climbed 2.6 percent less than the inflation rate. Dean Baker, co-director of the Center for Economic Policy Research, commented on this by saying, "With limited job growth and falling real wages, heavily indebted consumers will have difficulty maintaining a healthy pace of consumption growth."

The modest consumption growth, the fairly small pace of job creation, and a diminutive decline in the average hourly wage creates an image that begins to feed on itself. The image created is one of an economy that is growing only slowly; therefore companies remain reluctant to hire workers and create jobs.

(Updated February, 2005)

Questions
1.

Discuss the economic impact of slow job creation on economic growth.

2. Discuss the notion of "discouraged workers."
3. What does Mr. Baker mean by the term "real wages?"
Source Edmund Andrews, "Far Fewer Jobs Were Added in November Than Forecast," The New York Times Online. December 4, 2004.

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