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I've just completed a consulting project in South Africa looking at various economic inputs required to reduce their 25-35% level of unemployment. It is estimated that for every 1% of new jobs created, the South African economy must grow by 2.3%.

With a government target of 5 million additional jobs, over the current growth-rate, to be created over the next 10 years, the South African economy must grow at an average of 7.2% per annum for a decade.

I was wondering if anyone has done a similar calculation on what economic growth rate would be required to reduce US unemployment by half from the current 9-10%?

UPDATE: Fennec raises the point that a time-frame would be useful. Americans would probably want to halve unemployment in one year. So let's set this as, what economic growth rate would be required to halve US unemployment by December 2011, or December 2012?

Turukawa
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3 Answers3

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Two points.

  • Any job creation in excess of the number of new entrants into the labor force will eventually halve unemployment. That's math. You need to put a timeframe on it or the question is nearly meaningless.
  • Economic growth isn't always expressed in terms of job creation. It can also come about from productivity improvements, or the deployment of capital. The installation of a pancake-stacking robot creates economic growth but does not necessarily create new jobs (at least not directly).
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I believe the Bureau of Labor Statistics has published some numbers in this area... I cannot find them at the moment though.

I think you need to take these numbers with a grain of salt, though, because they cannot account for productivity and automation improvements that are being aggressively implemented. Companies aren't just bloodletting -- they are refactoring business processes and automating thousands of jobs away.

duffbeer703
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I'm reminded of Say's Law (developed by Jean-Baptiste Say) which can best be reduced to: The market clears (i.e. there is always some price at which an item will sell in a market). Full employment can always be obtained in any free market economy. People may not be pleased, however, with their wage rate.

There are, however, many deterrents to employment (at least in the US):

  1. Unemployment insurance
  2. Minimum wage laws
  3. Income taxes
  4. Payroll taxes
  5. Labor laws
  6. Labor union laws
  7. Civil rights laws
  8. Health insurance and family leave requirements for employers
  9. Food stamps
  10. Government housing
  11. Government medical care

These are just some I can think of off the top of my head. I'm sure there are many others.

Muro
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