Thursday, July 11, 2013

The Flexible American Workforce

Most economists like the idea of a flexible labor force.  Flexibility means a lot of things that are consistent with the concept of a market.  In the labor market workers are suppliers of labor.  Employers have a demand for labor.  The demand for labor can change in accordance with changes in the product and service markets.  A flexible labor force is able to adapt to changes in the demand for labor.  Anything that limits labor flexibility makes the labor market less efficient.  The market is also less efficient if employers are constrained by labor laws, union, or regulations that inhibit their freedom to do satisfy their demand for labor at a desirable price.

In a full employment economy the demand for labor may exceed the supply.  That puts pressure on employers to satisfy their demand in ways that provide an advantage to workers.  When the economy operates below full employment, the advantage shifts to employers.  This article describes some of the ways that employers have used to take advantage of the job shortage.  The number of part time jobs and temporary jobs has been increasing for a decade.  This has been accompanied by a decrease in hourly wages and a decline in the number of workers who are eligible for the benefits that ordinarily are made available to full time workers.  This has been good for business profits since the cost of labor is a major part of a businesses operating costs.

In addition to this trend, the demand for labor has shifted in ways that affect compensation.  The bulk of the new jobs in the most recent employment report have been in the service sector.  They are predominately in the low paying retail and hospitality sector.  The number of manufacturing jobs created, which typically pay higher wages along with benefits, was less than the number of manufacturing jobs that were lost.

The increased use of temporary and part time workers also distorts the data on unemployment.  They are considered to be employed even if they would like to be employed full time.  A lower unemployment rate does not mean what it used to mean when workers were laid off during a low point in the business cycle and were called back when business improved.  Jobs in the US are not what they used to be.  The labor force is more flexible and lower paid and it will remain that way as long as the economy operates below the full employment level.  

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