An Analysis of the United States’ Labour Market

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Table of Contents

Introduction
Minimum wage
Wage inequality
Short and Long Term Unemployment
Calibration model
Inward and outward Migration
References

Introduction

From the time when the Great Recession ended, the US economy has steadily grown accumulating up to 8.1 million opportunities; subsequently, collapsing the unemployment rate from 10% to 6.2%.

Despite not reaching its original condition, economic specialists posit that the US labour market is now healthy and likely to achieve its former glory in future. This is attributed to the tactical strategies placed by the federal reserves. One of the prioritised measures in the US Federal Reserve is the minimum wage strategy.

Minimum wage

Using sufficient literatures that analyse minimum wage, various authors differ on the extent to which a minimum wage impacts on employment (Abraham and Katz 1986, p. 509). This makes the study on the impact of minimum wage on employment common as well as most controversial in the labour economics field. However, basing the reasoning on both theoretical and econometric principles, it is arguable that the outcome of wage floor should be noticeable in new employment growth than it is in employment level.

According to Raise the Wage (2014), President Barack Obama requested the Congress to consider raising the countrywide minimum wage to $10.10 from the usual $7.25 an hour, as well as signed into law the Executive Order to increase the least earning to $10.10 for the persons employed in fresh federal deals.

Markedly, increasing the national minimum wage is meant to raise the earnings of many workers, as well as to enhance the level of business operations in the US (Raise the Wage 2014). Most states have the minimum wage at $7.25 on average, with slight positive deviations in a few states.

Substantiating by data analysis of US aggregate employment metrics for the employers’ population in the US, the American job growth radically declined in response to the rise in minimum wage (Abraham and Katz 1986, p. 515). Nonetheless, the data does not show an equivalent cutback in level of employment. Therefore, this illogical effect on employment level is neither a surprise nor a perfect reflection of the effect of minimum wage.

In addition, analysing the negative impact on net job growth establishes that minimum wage is majorly determined by downsize in job creation rather than by rise in job destruction (Raise the Wage 2014). Therefore, for the US data analysis of the minimum wage, the alterations in the minimum wage have tremendously affected the change in the number of jobs in the economy rather than the turnover for the individuals within existing jobs (Autor 2011, p. 11).

Wage inequality

The pronounced inequality of wage as the US data statistics for the last three decades point out can be attributed to the long shift in labour demand in U S. This is ascribed to divergence of employment opportunities across occupations, where employment growth is centred on skilfulness (Raise the Wage 2014).

Just like in other countries, empirical research shows that high skilled personnel receive lofty wages, while the low skilled receive meagre wages in the US labour market. According to the 2008 census survey, there is a twist in distribution of employment that transverses occupation over the last three decades as opposed to a uniform rise in the previous decades.

Krueger et al. (2014, p. 234) ascertain that in the last decade, there was a high increase in the growth of low-skill jobs because of lower education level in the previous decade. Outstandingly, this employment pattern had great impact on the wage growth. Ultimately, as low skill jobs were characterised with low wages, the polarisation of employment at the lower quadrant reflected on low wages for majority of the US population.

In contrast, the inadequacy of skilled labourers increased their demand, thereby reflecting a higher wage for the skilled jobs. Subsequently, the wage gain increased for the few skilful individuals at the upper quadrant. At the same time, the abundance of unskilled workers led to a drastic drop of wage at the lower quadrant.

Given that the US labour market is driven by the skilfulness factor due to the technological advancements, the wage inequality grew wider with the skilled persons gaining more wealth against their unskilled counterparts who earned too little (Autor 2011, p. 12).

At the same time, the middle class blue-collar jobs drastically disappeared. Considering the available data, the Great Recession has reinforced this US labour market tendency of polarisation in the skilfulness, where high skilled pocket high wage as the unskilled receive low wage rather than redirecting them or reversing these trends (Borjas 2013, p. 36).

Short and Long Term Unemployment

Determining the unemployment rate could be determined by different criteria, namely U-3 or U-6. According to economists, U-3 is restrictive; it is inclusive of the individuals actively searching for employment, but cannot find (Autor 2011, p. 13). The other measure, U-6 method, is possibly the most complete criterion in determining the unemployment rate (Autor 2011, p. 13).

This measure take in consideration the marginally attached workers, individuals who looked for work in the recent past even if not actively re-engaged in job search at present, as well as individuals employed on part time basis, but would prefer full time employments (Borjas 2013, p. 83).

Presently several literatures assert that a number of economic observers prophesy the current conventional Phillips curve and Beveridge curve models as putting emphasis on massive price deflations, limited vacancies, and great wage decline, which are all a result of high rate of unemployment witnessed during the Great Recession.

Notably, some of the economists explain the missed Phillips curve based on changes in price increase as well as interactions (Krueger et al. 2014, p. 235). On the other hand, other economists insist that Phillips’ curve price wage is stable only if the short-term unemployment is used, instead of using the total unemployment rate. However, neither of the explanations suggests that long-term unemployment is on the edge of labour work.

Instead, the demand and supply side effect of the long-term unemployment is possibly an approval that supports each other instead of completing the explanation (Krueger et al. 2014, p. 235). This is because the statistical discrimination towards long-term unemployment could possibly discourage the individuals (Autor 2011, p. 16).

Nonetheless, from this analysis, it is obvious that the long-term unemployed are to a lesser percentage connected to the economy as compared to the short-term unemployed. Likewise, the data, posit that the long-term unemployed are likely to pull out from the labour force than the short-term unemployed (Autor 2011, p. 16).

Krueger, Cramer, and Cho (2014, p. 229) affirm that in its frontward direction, the federal reserves have switched the attention from a quantitative unemployment threshold to advanced and wide-ranging measures of the labour market. In relevance to the econometric theory that calls for an alteration in response to a consequence, the US policymakers have improved the deteriorating situations that resulted from the Great Recession (Autor 2011, p. 17).

Profiling both long-term and short-term unemployment

The statistical data on unemployment in the US suggest that for majority of the decades before the Great Recession, the ratio of the unemployed individuals in US revolved between 10% and 20% (Krueger et al. 2014, p. 247). After the Great Recession, the long-term unemployed population escalated to an average of 40%.

This means that the long-term unemployed in the US economy has greater strain at the present economy than ever before (Krueger et al. 2014, p. 248). Summed together, the population of both the long-term unemployed and the short-term unemployed compared to the employed, it is notable that the majority of unemployed are younger, well educated, and unmarried.

In relation to occupation and education level, the mismatch between workers and the kind of duties they undertake are almost similar (Krueger et al. 2014, p. 248). In addition, both seems to have equivalent qualifications, thus any structural problem that leads to long-term unemployment could be due to lack of motivation, self-esteem, or negative attitude of employers who considers long-term unemployment to have knowledge erosion.

Duration of unemployment

Analysing the US unemployment data for the past three decades, it is arguable that there are three possibilities for alteration of the unemployment statistics in relation to duration of the unemployment. In the first scenario, the short-term unemployed have greater chances to transition into long-term employed than the long-term unemployed (Borjas 2013, p. 116).

In the second category, over the entire three decades data, the long-term unemployed are at almost the same range; they are prone to quit the labour force as compared to the short-term unemployed. Lastly, in this scenario, the three decades data imply a drastic crash in labour force depart around recessions for the long-term unemployed than short-term unemployment. Similarly, the data indicate a major fall in job finding measures around recession in the short-term unemployment than in the long-term unemployment (Borjas 2013, p. 127).

Work trends survey for unemployed

Another important aspect in analysing unemployment is the relationship of work trends to the transition rate of unemployed. Against the expectation of many, comparing the short-term unemployment and the long-term unemployment, the gap between the two categories is quite bigger (Autor 2011, p. 18).

The work trend survey results indicate that the possibility for long-term employed to get jobs is lower than the possibility for the short-term unemployed to get both full time and part time jobs (Autor 2011, p. 18).

Regional differences of unemployed within the United States of America

The recent data indicates that while some of the states in the US have fully or partially recovered from the Great Recession, some states are far long behind in the recovery process. This is an indication of the possibility of irregular unemployment due to the economic differences. From the analysis of these data, it is debatable that long-term unemployment is unpredictable even for states that have low level of unemployment (Autor 2011, p. 18).

However, economic factors such as the boom in the energy production in some state like Alaska, Iowa, West Virginia amongst others States have great effect on the general unemployment population (Abraham and Katz 1986, p. 520). The situation is complicated by a twist of scenario. First, in the areas with stronger economy, especially in the energy producing regions, the firms are likely to absorb higher number of workers, hence lowering the unemployment rate.

Alternatively, due to the strong economy, there is the likelihood for majority of the employees to get sustainable income, and, as a result, the long-term unemployed would most probably withdraw from the labour market (Krueger et al. 2014, p. 259). This could subsequently lower the general unemployment level.

The second scenario is that the presence of stronger economies could be indications of a likelihood of getting unemployment. Therefore, even the long-term unemployed might not give up, but instead keep the job hunt (Abraham and Katz 1986, p. 521). This could defiantly reflect into a massive number of unemployed in such regions.

Calibration model

Statistical evidence designates that after the Great Recession, the vacancies and unemployment link known as Berveridge curve curled outwards, as most of the vacancies than predicted were reserved for the high unemployment rate (Krueger et al. 2014, p. 258). Notably, this connection is firm when short-term unemployment rate is used.

This could be possible when the Beveridges curve shifts outwards after the rigorous shock because of slow job growth, an increase in long-term unemployment, a decrease in the entire match effectiveness, as well as a reduction in the number of individuals quitting the labour force (Borjas 2013, p. 169). This is more particular to the long-term unemployed. The unemployment and vacancies path can possibly relax back to the initial Beveridge curve position because of withdrawal of the long-term unemployed from workforce.

Gender discrimination in the US labour market

An analysis of the recent gender employment pattern signifies the occupational distinction based on gender witnessed in the US labour market. Initially, the blue-collar jobs that include crafts and operations were reserved for the male gender, while the female were distinguished with clerical occupations (Krueger et al. 2014, p. 258).

The situation is totally different from the current record. Even though, the contrast in traditional gender domination of occupations is visible, little is known about the cause. However, some labour market scholars believe that this employment disparity is a result of gender differences in job choice. Alternatively, the disparity in the occupancy based on gender could be because of differences in characteristics of the US labour force, such as occupational segregation.

Occupation segregation is the exclusion of workers from certain professions while dominating other occupations. Autor (2011, p. 12) states that over the years, researchers have dwelt on the measures and consequences of occupational segregation in the labour market. The changes witnessed in the characteristics of occupation in the US labour market are due to several factors; however, long-term transformation in occupation is core in these changes (Autor 2011, p. 16).

In this aspect, the growth in women’s labour force is linked to the rise in the ratio of white-collar jobs in the US labour market. Therefore, as more women join the labour market with some having higher educational level than the men counterparts, they get absorbed in the swiftly rising white-collar jobs in the clerical, professional, as well as technical fields (Autor 2011, p. 17).

The ageing population of the US labour market

Statically analysis projects the US’s population to increase by 91 million over the next 4 decades from the 309 million of 2010 to 400 million mark by 2050 (Abraham and Katz 1986, p. 508). Even though this growth is anticipated to take place in larger brackets, the entire growth will be resolute in the ageing bracket.

In essence, this perception implies that the number of people in the ageing group – at the age of 65 and above – will be more than double. This in fact means that the aged population could increase from 13%, according to the 2010 population, to 21% of the total population in the prospected 2050 population (Abraham and Katz 1986, p. 510).

Even though the age bracket of between 20 and 64 that actively engage in workforce labour will also continue to grow, the growth rate in this bracket is much slower as compared to the era when the baby boomer bulge propelled it (Abraham and Katz 1986, p. 511).

Therefore, this population of the working force is likely to reduce in size from 60% of 2010 to 55% in 2050. Notably, the labour force participatory rate in the United States of America is recorded to have dropped tremendously since the occurrence of the Great Recession period of 2007 to 2009. The fall is attributed to three main factors.

According to Abraham and Katz (1986, p. 510), the effect of cyclical from the Great Recession, the ageing population, and a combination of several other minor factors can explain these transitions. However, of the two identified factors, ageing population to date cater for the better part of the effect.

Government policies to increase labour market flexibility

Labour market flexibility has different definitions with varied meanings to different people. Whereas in some parts of the world, labour market flexibility means a room for employers to fire employees to reduce wages (Krueger et al. 2014, p. 255). In the US, it is a virtue aimed at empowering employees.

In the olden days, low unemployment coupled with edgy labour markets forced several authorities and the policymakers to formulate numerous programmes to ensure that the labour markets are more flexible and effective. Some of these policies aimed at intensifying labour work force. In the US, policies to increase labour market flexibility aimed at extending the service to incorporate the identification of both the long-term and the immediate needs of the labour market (Krueger et al. 2014, p. 258).

This included working with the employers to screen and select trainees that would assist in the immediate demand of the US labour market. To achieve this target, the US Federal Government established a professional training centre for the white-collar job opportunity. In addition, in the midst of transformation to technology-based operations, this move aimed at strengthening workers’ training programmes to produce capable graduates for the demanding labour workforce (Krueger et al. 2014, p. 259).

Most of these policies aimed at employing the citizens in the job superfluous sectors. While, the original policies at training and including new employees in the industry, the recession later changed the idea to policies that meant to retain the employed for longer duration as possible (Krueger et al. 2014, p. 261).

In this effort, the US Federal Government initiated programmes advocating for short-term work, in which workers enjoyed partial unemployment benefits even after reducing their working hours to avoid lay-offs. Equally, the Federal Government provided employers with subsidiaries in order to retain workers who would otherwise had been laid off. In response, the US model of labour market flexibility proved to be the most probably response to the growing unemployment dilemma (Krueger et al. 2014, p. 263).

Inward and outward Migration

The United States’ labour market is illustrious for outward migration of skilled workers for permanent or temporary work. Similarly, the US’s labour market assimilates a number of outward immigrants who are majorly unskilled workers. According to Borjas (2013, p. 67), immigration has both its merits and demerits; it can drain the country of the skilled labour workforce, thereby impacting on the workforce negatively, and, at the same time, adding to their incomes.

Alternatively, importation of unskilled workers in the country increases competition, thus raising the level of unemployment in the country. Although exportation of skilled workers that is dominant in the America’s labour market might lead to brain drain, it is arguable that temporarily employed workers could as well bring with them new ideas to their country upon their return (Borjas 2013, p. 87).

These efforts by the Federal Government intended to create policies that could increase labour market flexibility aiming at strengthening the US internal labour market (Krueger et al. 2014, p. 295). Even though some of these policies allow employers to lay off workers, their ultimate goal is to generate additional job opportunities at the expense of high living standards. From this research, it is fair to argue that both the outward and inward migration of the US population has benefit to the US labour market.

For the outward migration, this trend eases competition in the local market, thus maintaining the high level of demand for the expertise skills. The trend can maintain the wage gap in the country. Besides, this helps in reducing the unemployment rate in the robust US labour market.

For the inward migration, the high number of the unskilled employees increases competition for the unskilled job opportunities (Borjas 2013, p. 90). This helps the Federal Government in maintaining low wage for the unskilled workers, hence impacting on the general labour market benefits.

References

Abraham, K. and Katz, L.F 1986, ‘Cyclical Unemployment: Sectorial Shifts or Aggregate Disturbances?’, Journal of Political Economy, vol. 94, no. 1, pp. 507-522.

Autor, D 2011, ‘The polarization of Job opportunities in the US labour market: Implications for employment and earnings’, Journal of community investment, vol. 23, no. 2, pp. 11-18.

Borjas, G. J 2013, Labor economics, McGraw-Hill, New York.

Krueger, B., Cramer, J., and Cho, D 2014, ‘Are the long-term unemployed on the margins of labour market?’, Brookings Papers on Economic Activity, vol. 17, no. 9, pp. 229- 302.

Raise the Wage 2014. Web.

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