South-Western College Publishing - Economics  
Good Jobs Report for 2005
Subject Job Creation
Topic Employment, Unemployment, and Inflation
Key Words

Jobs, Recovery, and Structural Change

News Story

The U.S. Labor Department reported 157,000 new jobs created during the last month of 2005. This number was slightly less than many economists had projected, and indicates that companies are still cautious about putting on new workers. Despite the sharp swings in monthly job creation reports over the year, and given the revisions to initial estimates, 2004 appears to have been characterized by steady employment growth. The report indicates that the economy has nearly reached the number of jobs that existed before the 2001 recession began. A growing adult population of about four million people added many workers to the labor force in 2004. The new jobs created in 2004 essentially kept pace with the growing population and kept the unemployment rate unchanged at 5.4 percent.

2004 ended with a total job creation count of about 2.2 million jobs. This was the best year for job creation since 1999 and the first growth year since 2000. Some analysts are still cautious about what the report means for the future, but slow economic growth and slow job growth will likely continue. “It’s a wet firecracker,” said Richard Yamarone, chief economist at Argus Research, a forecasting firm in New York. “This is positive job creation, but it pales in comparison with what we have had in previous economic recoveries.”

Retail sales showed a notable weakness in job growth and points to a structural change in the economy. The retail sales sector lost approximately 20,000 jobs in December, a sharp turnaround from a year earlier. Argus Research economist Mr. Yamarone said the decline was an indication of the effect of Internet sales on conventional “brick and mortar” retail stores. “What it shows you is the presence of the Internet,” Mr. Yamarone said. “You don’t need sales people anymore. You need people to deliver goods.”

The report also suggested that employers were still squeezing their labor costs and wage increases failed to keep up with inflation. Hourly wages were almost stagnant, climbing only 0.1 percent in December and only 2.7 percent for the year. Weekly wages climbed a little faster, but only because workers put in more hours on average. Both hourly and weekly measures fell short of 2004’s inflation rate of 3.5 percent.

Generally, the report described an economy that continues to grow. “It’s a solid report,” said Mark Zandi of Economy.com. “There were just enough jobs to create just enough income to keep consumers spending and the economy moving forward.” According to Mr. Zandi, the disappointing showing of wage increases indicates that workers have little bargaining power with employers despite last years’ improved growth in corporate profits.

Questions
1. Explain how the unemployment rate is computed.
2. Why is it important to compare the new job growth with population growth?
3. Define structural unemployment. Do the numbers noted in the article above point to structural unemployment? Explain.
Source Edmund Andrews, “Economy Adds 157,000 Jobs, Ending Best Year Since 1999”, The New York Times Online, January 7, 2005.

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