That sounds like two conflicting facts, new jobs were down at 115,000 jobs created during April, fewer jobs than expected, but at the same time the unemployment rate fell from 8.2 to 8.1 percent. How was that possible? The economists tell us it is because of people dropping out of the labor market.
The people who drop out of the labor market have become beneficiaries of our so called “Entitlements” programs such as food stamps, and social security disability. The workers over the age of 16 years old who have dropped out of the job market brings the real unemployment rate to 14.5 percent, according to a Fox News report.
Workers who drop out of the labor force face some long term problems as employers are reluctant to hire workers who have large gaps in their employment records. Skills become outdated and even obsolete within a year or two. The people who qualify for social security disability benefits may face some medical hurdles to become re-employed again.
Some economists say that some of the people who are dropping out of the labor force are the ageing baby boomers, who are starting to retire. Many may be retiring at age 62 before the retirement age for social security is changed.
The economy and jobs are interrelated, and remain our most important national priority. Few jobs are created in a weak economy because companies only add new jobs when the demand for the company’s products exceeds the capability of their existing work force to meet the increased product demand.
Consumer demand drives the largest portion of our economy; people like you and I buying cars, homes, TV, and what not. If fewer people are employed the demand for big ticket items declines. The demand for the basic necessity items such as food and clothing remains fairly constant as the money for these items is being paid from entitlement and unemployment checks for people who are not working.
I am not an economist but even I can see that the burden on the people who actually working is increasing with the number of unemployed increasing. Each unemployed person places a tax burden on the people who are working. True the money is being paid by the federal government, but the only money the federal government has is that money it collects in taxes.
The unemployment rate of 8.1 percent tells us that people are continuing to become unemployed at that rate each month. Each month the number of people who have become unemployed has been increased by 8.1 percent. For each person who becomes unemployed the overall economic output is reduced by the amount of his salary. The BLS says 12.5 million people were unemployed in April. The BLS also says that the average pay for those workers would be around $19.75 per hour, if they were still working.
If we figure 12.5 million workers are paid 19.75 per hour for a 40 hour week that would come to $790.00 per week per worker. Now if we multiply 790 by the 12.5 million unemployed we get 9 billion 875 million per week. If we multiply that by 12 months we get 118.5 billion dollars per year.
That is a lot of money, but if all of those people go into the entitlement programs that amount is doubled because not only are they not contributing to the economy, they now get government checks that also comes out of the economy. That check has to be paid by the taxpayers who are working, so their taxes must increase enough to pay the extra burden.
The economists say that the incomes of middle income Americans are shrinking, yet our salaries are not being reduced. Our salaries are shrinking because of the increasing tax burden imposed by the entitlement programs.
It is important that we restore the economy, both to stop the loss of jobs, and to prevent farther increase in the entitlement programs.
The Europeans have been engaged in imposing severe austerity programs on the Members of the EU who have government expenditures that have created excessive budget deficits. The austerity programs have forced the economies of those countries into recession.
National economies and international economies are extremely complex, but if we take the simplest example we can find perhaps we can muddle our way toward the truth. If you become unemployed the first thing you do is start cutting your expenses so you can live on your unemployment pay.
Eventually you find you have cut your expenses to the point that any additional cuts will impact your life style. Then additional cuts are imposed against your will, your home may be foreclosed on, and the bank repossesses your car. No matter how much is cut your condition will only worsen until you can find new work.
It is the same with national economies; the first order of business should be to restore economic output, then ways may be found to reduce excessive spending. That gives us something to think about in the 2012 presidential election; which candidate has the vision to restore our economy?