South-Western College Publishing - Economics  
The Fall and Rise of Economists
Subject Labor Demand
Topic Labor Markets
Key Words Forecasting, Cost-cutting, Consolidation, Pay, Layoffs
News Story

Although the economy is faring well, economists are being laid off. First, it was manufacturing firms like DaimlerChrysler and IBM that cut back. More recently, it has been firms in the finance sector. BankAmerica Corp. has closed its 21-member economics department, and Nikko Securities and Citibank lost their economics departments when they merged with Travelers Group Inc.

Companies no longer need general economic forecasting. Most executives are aware of economic trends, especially given the abundance of information available on the Internet. Besides, economists were never perfect forecasters anyway, failing to predict the oil crises in the 1970s and the steady growth of the 1990s. Not surprisingly, they have fallen victim to cost-cutting efforts. Also, as companies have consolidated, they have eliminated duplicate positions, including economists.

However, people with economic training are finding other positions and their pay is continuing to rise. Consulting firms now hire 19 percent of economists, compared to 8 percent in 1978. Manufacturing firms' hiring has fallen from more than 25 percent to 7 percent. Also, the word 'economist' is less likely to be in the job title.

(Updated July 1, 1999)

1. In the recent past, economists have made some significant errors and the internet has become a valuable source of information.
  a)Which determinant of the demand for economists' labor would reflect the quality of economists' predictions?
  b)Which determinant of the demand for labor would encompass the growing availability of information on the internet?
  c)Draw a wage-employment diagram of the demand for labor in manufacturing. Show what happened to the demand curve as a result of the changes in the determinants of the demand for economists in parts (a) and (b).
2. Firms have increasingly merged and consolidated over recent years.
  a)When firms like Nikko Securities merged with other companies, they reduced what services they provided because their merger partner was already providing them. Which determinant of the demand for economists' labor would reflect this factor?
  b)Draw another diagram showing the demand for labor. Illustrate the effects of mergers on the curve.
3. Fortunately, for those with economic training, consultancy companies are growing. In a diagram showing the demand for, and supply of, economists, show the effect of the growth in consulting opportunities on the equilibrium wage and employment levels of economists.
Source Tristan Mabry, "Companies Are Laying Off Economists," The Wall Street Journal, April 29, 1999.

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