November 19, 2010

Unemployment in Ohio

To sum up this article, the unemployment rate is falling in Ohio and has been for the past several months. That is because jobs are being "created" right!?!? Well, not so fast. Here is the breakdown of jobs "created" :

The state added more than 8,000 jobs, with the largest gains in government jobs (4,300); professional and business services (2,700); leisure and hospitality (2,600); and educational and health services (2,100).

So out of these 8,000 jobs "created" this month 4,300 of them are government jobs and 2,100 are educational and health services jobs. I have a slight problem with this. As we learned in class today, people will be hired if their marginal revenue product(MRP) is greater than their marginal expense(ME). That is, if they bring more to the company for every addition good they produce than they cost for every additional unit of the good they produce, they get hired. My big problem with this article is that I do not think that alot of these jobs "created" are hiring employees where their MRP>ME. These government jobs may be something else that I am not thinking of, and I am not counting out the possibility that they might, but in reality I think these jobs are ones that government is "creating" for the sake of numbers, or some other reason that in general go against what we know about efficiency.

These government jobs may be representing a false demand for labor, and a false number for the unemployment. Although keeping people busy with work may have other effects such as lowering crime, these jobs are most likely temporary and will not be there long term. The jobs that I am excited to see being created are the 2,700 professional and business services and 2,600 in leisure and hospitality. What this tells me, is not that jobs are necessarily being "created"(I officially don't like using that term here), but that there is an increase in the demand for labor in these fields. Leisure and hospitality implies hotels, spas, gyms, that sort of thing, at least to me. And if people are using hotels and spas and chiropractors more, this must mean that they are choosing to spend money and consume. These are the jobs that are going to help our economy recover and help people in the long run, not the jobs that government "creates."

1 comment:

Larry Eubanks said...

When you point out that a worker will be employed if MRP > ME, keep in mind that this is the condition that helps us understand the choices of a profit-maximizing business.

In contrast, government is not a profit maximizing decision maker, and thus the condition may well not tell us any thing about government choices with respect to employing workers. The person making government employment decisions may have the objective of maximizing the budget of his or her agency, and if so the decision about hiring another worker is unlikely to involve considering the MRP of the worker, and it is even likely that the ME is not viewed as a cost but as a benefit.