Why do we need 3% economic growth to keep unemployment stable? – Part 1

I like to think of myself as not too stupid. When I don’t understand something, I like to dive into that.

  • Sometimes I learn new facts that help me make sense of what seemed like disparate and nonsensical data points.
  • Sometimes I learn what I thought were facts were not.
  • Sometimes I learn new theories of the world.
  • Sometimes I decide those theories are nonsense and the reason I didn’t understand the thing in the first place is that it makes no sense.

Searching out areas where I feel confused or uncertain is a useful way to figure out how to move forward. I try to shield from public view when these areas of uncertainty are to do with economics. But no more.

I believe we need high growth to keep unemployment stable. But I’ve never really understood why.

My economics education was a good one. But I never did honours – let alone a PhD – and it was a long time ago. They didn’t teach us everything, and I’ve forgotten plenty.

This is my way of saying I don’t know everything about economics. (Despite how obvious it is this is weirdly hard for me to type.)

What I’m doing here then, is going on a learning expedition. Trekking deep into territory that has been explored, but not by me. Maybe along the way I’ll learn something. Maybe even have some insights that are new to me. Maybe even have some insights that are new!? Most likely I will discover everyone else already knew something I didn’t.

This is part 1. I’m expecting to be able to put together a few more parts over coming days as I learn a bit on this topic. But for now, I’m going to write about a few of the preconceptions I have that give me the idea this is an important question to pursue.

  1. My sense is if the Australian economy saw population growth and productivity growth drop to zero it would have growing unemployment. But basic economic equilibrium theories would suggest that doesn’t happen. Why wouldn’t all the firms just produce the same again next year, using the same workers?
  2. My guess is that growth has in the past come largely from population growth. Which is weird. It suggests adding new people to the population / labour force creates so much new demand that it props up not only their own job but other people’s jobs too.
  3. The global population is growing fast. But it may stop doing so within our lifetimes. At that point, population growth will stop contributing to economic growth. If population growth causes econ growth causes employment, the end of pop growth could be the end of employment.¬† That’s a nasty scenario. We may have to choose between the limits of the planet or the employment of its workforce.

At the least this will be a quick two part series where I explain the answer in part 2 and am forced to revise the first thing I said in this post. ūüėČ

Please leave any helpful comments or suggested reading for me in the section below. I’ll write more soon.

Unemployment is down! We Think!

Unemployment numbers are out and they look like good news. Unemployment fell 0.2 per cent to 5.8 per cent. This matters to everyday life in the following four ways.

1. Lower unemployment should mean bigger pay rises, and more options if you lose your job.

2. Lower unemployment increases the chance the Reserve Bank will hike interest rates, which will get you a better return on the money you have stashed in the bank.

3. Lower unemployment tends to force up the Australian dollar, creating cheaper holidays and cheaper imports. (It jumped over US94c this morning for the first time since last November.)

4. Lower unemployment increases the chance of the incumbent government doing well in the polls. “It’s the economy, stupid.”

But…

There’s not total absence of¬†doubt.

If you look at the numbers more closely, there’s a few little things that might make you worried.Image

For starters, while the latest data, seasonally adjusted, shows the unemployment rate falling sharply, the trend data (calculated over a longer period) actually has unemployment rising.

There are things doubters can always say about the monthly data, that are not especially helpful.

“It’s just one month!”

“The standard¬†error of the unemployment rate estimate for this survey is 0.2 per cent!”

“Seasonal adjustment is not perfect!”

The top two complaints are true and can only be resolved by waiting for more data (which will, itself, be subject to the same issues…).

But the ABS manages seasonal adjustment pretty well. They even account for the fact that Easter was in March last year and in April this year

March is a big month for falling unemployment.

Red line represent falls in March
Red lines represent March

On average, unemployment has fallen in 19 of the last 20 Marches, by an average of 44,000. Why? perhaps it’s only now that businesses are getting over the summer lull.

The ABS takes that effect out systematically. The red lines are the last 20 Marches, almost all of which show falling unemployment. But the average of the blue lines is just about zero:

Red dots are original data, blue lines are seasonally adjusted.
Red dots are original data, blue lines are seasonally adjusted. (data for last 20 Marches.)

We can trust this data for now. But it will be very interesting to see if April results in the effect being magnified or reversed.

Do you really get a job by looking at job ads?

How exactly do people get jobs?

A few people I know are currently looking for work. I began to wonder if combing through advertised jobs is enough, and thought a little sample of my own experience might help answer that question.

1996. My first ever job was selling ice-creams at a festival in Melbourne called Moomba. I got the job through a friend’s dad. Pay and conditions were great.
Ad: 0%. Luck: 0%. Inside running: 100%.

Image
Back when I wore a watch

1998 After I finished school I got a job as a busboy at a cafe in a shopping centre. It wasn’t advertised but I handed my resume out to 20 businesses near my house and this one had an employee quit the next day. $8.50 an hour in cash seemed pretty good to me.
Ad: 0%. Luck: 100%. Inside running: 0%.

2000 I became a waiter at Pancake Parlour. Pay was a whopping $7.27 an hour. It was an advertised job for which I went through a quite involved interview process.
Ad: 100%. Luck: 0%. Inside running: 0%.

2001 Waiter at italian restaurant. Through a friend. I lasted about three weeks.
Ad: 0%. Luck: 0%. Inside running: 100%.

2002. Market research interviewer. A friend who worked there told me the place was hiring. Great¬†pay and conditions so¬†I joined the union. Ended up doing market research for big tobacco, but I didn’t mind because smokers loved to chat about smoking. It beat asking people about banks.
Ad: 80%. Luck: 0%. Inside running: 20%.

Teaching english2003 I applied to an ad for an English teacher in the small town of Qinhuangdao, China, where I found I could go months without seeing another foreigner.
Ad: 100%. Luck: 0%. Inside running: 0%.

2004. I parlayed my meagre teaching experience into a job as a tutor in the first-year economics subjects, which was among the best and most convenient jobs for a student ever.
Ad: 100%. Luck: 0%. Inside running: 0%

2005. My first full time job. I became a graduate Treasury policy analyst, living in Canberra.Treasury shot tidied up Ad: 100%. Luck: 0%. Inside running: 0%

2005. Ski instructing at Perisher Blue. A week-long “hiring clinic” for which you have to pay hundreds of dollars serves as both interview process and training.
Ad: 100%. Luck: 0%. Inside running: 0%

2008. Nauru budget adviser. I happened to have just finished my tutoring contract when I was asked by someone I knew in the federal government to come to an interview. I don’t think they interviewed anyone else.

nauru office Ad: 0%. Luck: 20%. Inside running: 80%

2009 Victorian government policy officer. Through a recruitment company.
Ad:¬†0%.¬†Luck:¬†0%.¬†Inside running:¬†0% (I’d say it was 100 per cent luck but luck should be good and this job wasn’t.)

2010. Journalist at the Financial Review – I applied at a timely moment when a bunch of people had quit. But there was no job advertised and I had someone on the inside put in a good word for me.
Ad: 0%. Luck: 30%. Inside running: 70%

2013 РFreelance writing. I sell things mostly to people I know from my other jobs, but also via some cold calling.
Ad: 0%. Luck: 20%. Inside running: 80%

After having had 17 jobs, just six¬†came from simply seeing an ad and applying. My crude averaging of the numbers (including some jobs I didn’t go into above) says ads explain 46 per cent of my jobs, inside running 32 per cent, and luck 22 per cent.

Screen Shot 2014-04-08 at 10.24.52 am

(I should note luck played a pretty big part in being born to a family that cared a lot about education and invested in my future. It also doesn’t hurt to be in a bunch of categories that are unfamiliar with the sting of discrimination. Is my experience strongly shaped by these¬†privileges?)

The common trope is that 70 per cent of all jobs are not advertised.

Economic theory suggests a great benefit and a great cost. If firms are able to fill jobs quickly and minimise their search costs, that could be an advantage. But if it means they miss out on the best human resources, they suffer.

Despite the risks of hiring through word-of-mouth, the approach is not about to go away. This paper finds that firms that hire through referrals may be more profitable.

This expert recommends¬†job hunters should spend: “20% of the time responding to job postings …¬†another 20% ensuring your resume and LinkedIn profile are easy to find and worth reading, and the remaining 60% networking to find jobs in the hidden market.”

If my experience holds for everyone, its going to be advantageous to keep working in the same city, or at least the same country, where you have a bunch of connections. It also doesn’t hurt to¬†be¬†on LinkedIn.

But I want to know if the same is true for you. Have you got your jobs by responding to ads and going through rigorous processes? Have you been lucky? Made your own luck? Deliberately developed¬†and used¬†your networks? Please¬†share your experience in the comments! (Look for the words¬†“Leave A Reply” below)