The US unemployment rate reached 9.2 per cent in June, up from 8.8 per cent in March of this year and double the 4.6 per cent rate in 2007 just before the recession began. Even if a short-term deal is done on the US debt ceiling, this high and rising unemployment hurts consumer confidence and weakens President Barack Obama’s chances for re-election.
The high unemployment reflects the lack of demand rather than any fundamental problems with the US labour market. With little prospect for an upturn of demand for their products, businesses have laid off large numbers of workers, reducing incomes and raising the unemployment rate.
But, despite all of these problems, there is good reason for Americans to be optimistic that the unemployment rate will eventually get back to the traditional US “full employment” rate of about 5.5 per cent. The key to the future full recovery of employment is the flexibility of the US labour market. Real wages are flexible and are currently falling. Employees are mobile both geographically and among industries. Continue reading »