Daily Archives: January 12, 2012

One of the great constants in the world economy in the past few decades has been the consistently strong growth in the US labour force. This has given American economic performance a demographic head start compared with other developed countries. Not only has it been the main factor ensuring that US GDP growth has remained well above that in Europe, it has also injected flexibility and dynamism into the US economy. But all of that is now at risk. The US labour force suddenly stopped growing in 2008, and has been falling slightly ever since.

As a result of this sudden disappearance of growth in the labour force, the unemployment rate has fallen by 1.5 percentage points in the past two years. But it is doubtful whether this represents a genuine tightening in the labour market. More likely, the underlying growth in the labour force has been disguised by the fact that potential workers have been discouraged from remaining in the labour market by the shortage of job opportunities. Without this shrinkage in the labour force, the unemployment rate would have risen to more than 11 per cent by now. It is urgent to fix this problem before the labour market atrophies, as it did in Europe in the 1980s. Read more