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Session

Unemployment

Why Would Boeing Cut

Thousands of Jobs As the

Economy Expands?

• More Than 1,800 Boeing Employees Accept Voluntary Buyouts,” Wall Street Journal , March 3, 2017;
• In 2017 Boeing announced that it was cutting 1,800 jobs in addition to the 7,000 jobs it had cut the year before.
• Continued expansion of the U.S. and world economies.

Facts don’t add up

• In contrast to the layoffs at Boeing, the national unemployment rate, which had remained stubbornly high for several years after the 2007–2009 recession ended, had reached more normal levels by 2017.

Unemployment Rate/Unemployment Labour Force= Number of employed+Number of unemployed Population Out of labour Force (Not actively looking for jobs, e.g., discouraged workers) Employed (with paid job) Unemployed (do not have paid job )

Frictional Unnemploy men

• Unemployment Rate

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• Causes of unemployment
• Frictional Unemployment: The unemployment that results from the process of matching workers and jobs is called frictional unemployment, and it is often thought to explain relatively short spells of unemployment.

Structural

unemployment

Structural unemployment arises from a persistent mismatch between the job skills or attributes of workers and the requirements of jobs. Example ‘’Computer-generated three-dimensional animation has replaced traditional hand drawn two-dimensional animation in most films and television shows. As a result, many people who are highly skilled in hand-drawn animation lost their jobs. To become employed again, they had to either become skilled in computer-generated animation or find new occupations. In the meantime, they were unemployed. Economists consider people in situations like these animators faced structurally unemployed’’.

How Should We Categorize the Unemployment Resulting

from Boeing’s Layoffs?

Travis Dove/Bloomberg/Getty Images Did these layoffs result in an increase in frictional unemployment, structural unemployment, or cyclical unemployment?

• Wall Street Journal noted that “Boeing in recent years has invested heavily in automated manufacturing equipment.”

Caterpillar Announces Plans to Lay Off Workers, “Caterpillar to Lay Off One-Third of Workers in Wisconsin,” Wall Street Journal, June 14, 2013.

What went wrong?

• Caterpillar fared relatively well during the severe 2007– 2009 recession.
• Worldwide demand for its mining equipment remained strong (particularly in China and other developing countries)
• By 2013, however, growth in China and some other developing countries had slowed and also demand for mining products.
• As dd for Caterpillar’s product declined the company announced that it would lay off 260 employees from its South Milwaukee plant.

• Ordinarily, a freeze on wages over such a long period would impose a hardship on workers because rising prices would quickly reduce the purchasing power of their pay.
• But prices have been increasing relatively slowly, making the contract more acceptable to Caterpillar’s workers.

• At the time of the layoffs, the U.S. unemployment rate was more than 7 percent, well above what economists consider the normal level of about 5.5 percent.
• In fact, President Obama’s economic advisers and economists at the Congressional Budget Office did not expect unemployment to again reach that normal level until 2018.

• If the slower growth in these economies was due to the business cycle, then the unemployment at Caterpillar was cyclical, and the firm would likely rehire the workers when these countries began to grow more rapidly.
• Some economists, though, believe that growth rates in China will be lower for more than just a few years. If the demand for mining equipment is going to be permanently lower, the layoffs at Caterpillar represent structural unemployment.

• If the layoffs at Caterpillar had resulted from mining firms preferring machinery produced by one of Caterpillar’s competitors, such as Komatsu, the unemployment would have been frictional.
• In fact, though, Komatsu and other firms have been suffering from sales declines similar to what Caterpillar has been experiencing. So it seems unlikely that the workers Caterpillar laid off were frictionally unemployed.