From: c.oneill@trl.oz.au (Chris O'Neill)
Subject: Re: keating - our hero!
Organization: Telecom Australia Research Laboratories, Melbourne, Australia
Date: Mon, 12 Oct 1992 05:39:41 GMT

In article <GNB.92Oct9195230@duke.bby.com.au> gnb@duke.bby.com.au (Gregory N.
Bond) writes:
>
>Chris> Unemployment is a lagging indicactor because of population growth.
>
>I don't think this is strictly correct.  

I didn't mean to imply that population growth was the only reason why
unemployment is a lagging indicator.

>Unemployment is a lagging indicator for a number of reasons:
>
>- Sacking staff is _expensive_ (redundancy pmts etc) as well as bad
>  for staff morale (setting aside looking after your workforce) and
>  most businesses will avoid it if at all possible.  So what happens
>  is a pool of under-utilized staff builds up.  Then, when the rest of
>  the economy picks up, businesses have extra staff resources
>  available to handle the extra work without employing extra staff
>  numbers.  So it takes a fair bit of growth in the economy before
>  demand for new jobs increases.

The above is an argument about EMployment, which I said was not a lagging
indicator which means that I'm saying that reality does not follow the above
argument.

The reason I'm saying that EMployment is not a lagging indicator is because
that was the case in previous recessions, i.e. employment grew in line with GDP
when the recessions ended.  Things are slightly different now because the
Government has changed the definition of GDP (which makes GDP growth higher
than it would have been under the old definition).

>- Businesses tend to hang on and hang on, only to go bust some way
>  into the upturn, increasing the unemployed pool during a putative
>  recovery.  (I.e. just because a recovery has started, it doesn't
>  mean no more failures, as the damage from the down years may still
>  be fatal in the medium term.)
>
>- The participation rate (basically %age of people of employable age
>  actually activly looking for full-time work) is the main driver of
>  the unemployment rate.  As the economy slows down, lots of people
>  give up looking for work and either go back to school, get part time
>  jobs or give up and do something else.  This tends to reduce the
>  unemployment level on the way down.  On the way up, people note that
>  things are looking better and start looking for work again.  In
>  particular, people working part-time tend to start looking for
>  full-time work.  This keeps the unemployment rate higher during a
>  recovery. (In fact, I was listening to AM the other morning and one
>  economist estimated that the percentage of people unemployed, or
>  under-employed, or given up altogether, who would work full time if
>  there was a job available, at about 17% of the labour force.)
>
>- There is only so much extra schooling a person can do, and with
>  limited Uni places, a person who decided to do 5th form/HSC/Tafe
>  (rather than get a job) at the start of a recession has only a
>  couple of years before re-entering the labour market.  So you get a
>  "burst" of delayed unemployed a year or two after the downturn
>  starts.
>
>- People tend to delay retirement during bad times, so the total size
>  of the labour force grows more quickly than in good times.  
>
>- Population growth in Australia is actually quite small, and the
>  growth in the labour force is even smaller;

How do you get that the growth in the labour force is even smaller.  The number
of people of school leaving age is greater than the number of people of
retiring age (e.g. there are more people aged 18 than aged 65).

> such things are swamped
>  by changes in the participation rate.
>
>Greg.
>--
>Gregory Bond <gnb@bby.com.au> Burdett Buckeridge & Young Ltd Melbourne
Australia

Chris O'Neill
Telecom Research Labs
Newsgroups: aus.followup