Labor Market Malfunction

Friday, 30 Mar 2012 06:53 AM

By Barry Elias

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During the past decade, college graduates have experienced a decline in real wages.

According to the Economic Policy Institute, average inflation-adjusted hourly wages fell 11 percent to $21.68 for males. Females faced a 7.6 percent drop to $18.80.

Bart Hobijn, an economist at the Federal Reserve Bank of San Francisco, indicates the average hourly rate has risen modestly during the past 10 years, since more low wage individuals have become unemployed.

Harvard economics professor Lawrence Katz projects supply and demand for labor will not be in balance for 4 years: high levels of unemployment will further erode wage rates.

Since 1999, the potential labor supply swelled by 31.87 million, or 15.3 percent. Despite this rise, employment grew by only 6.38 million, 4.8 percent. The difference, 25.49 million, is comprised of 17.62 million not in the labor force (25.8 percent increase) and 7.87 million unemployed (133.8 percent increase).

Refer to the graphic below:

                                                           (in thousands)

                                                                                            

                        Potential            Available            Not in                Participation

 Year               Labor Supply     Labor Supply    Labor Force1     Rate2       Employed     Unemployed

1999           207,753         139,368         68,385         67.1%          133,486      5,880
2011           239,618         153,617         86,001         64.1 %         139,368     13,747
_______________________________________________________________________

Change        31,865            14,249         17,616         (3.0%)             6,383       7,867

% Change     15.3%             10.2%           25.8%        (4.5%)             4.8%     133.8%        
_______________________________________________________________________

Source: Bureau of Labor Statistics

Notes:

1.  Not in Labor Force = Potential Labor Supply - Available Labor Supply

2.  Participation Rate = 
Available Labor Supply / Potential Labor Supply





While education may be abundant, marketable skills and knowledge are scarce.

This dynamic is the manifestation of misplaced values over many decades, where debt driven consumption eroded prudent investment, curiosity and learning.

Righting this ship of wisdom, I fear, may take decades to complete.


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