From the Labor Commission of the CPUSA, updates, information, news, analysis, and organizing materials in solidarity with workers of the world.

Wednesday, April 15, 2009

Unemployment -- not a ‘lagging indicator’ of economy

Author: Jim Genova
People's Weekly World Newspaper, 04/10/09 16:01

It is conventional wisdom pontificated ad nauseam on business channels like CNBC and Bloomberg that employment figures are “lagging indicators” of the state of a country’s economy.

Their argument is that as recessions begin businesses start to contract the labor force in order to “hedge” against expected declines in revenues and profits, even if they are not at that time losing money. This “streamlining” and “cost-effective” measure is designed to keep businesses profitable even as the economy as a whole slides into crisis. The result is that those employers who take proactive measures by dismissing their workers in advance of a deepening economic crisis will be the healthiest coming out of it. They will have surplus capital available to capture market share and swallow their competition. Such activity is a sign of economic health, so the argument runs, an indication that the “natural functioning” of the business cycle is working and the markets are “correcting themselves.” The result is that healthy businesses that continue to lay off workers as the economy bottoms will invest in new technology, improve efficiency in production, and prepare the ground for the next stage in the economic recovery. That means unemployment is likely to continue increasing even as businesses’ balance sheets get healthy, the stock market rises in value, and productivity rates improve. Those workers still employed are likely to receive better wages through working longer hours (not necessarily wage increases), which improves their purchasing power, thus contributing to the overall expansion of the economy – even as millions continue to languish on unemployment lines and more join them month after month.

The argument outlined above is flawed and reflects the perverted standards used by capitalist economists to measure economic vitality. As is obvious, the perspective outlined above to determine whether an economy is expanding or contracting is taken entirely from the standpoint of corporate balance sheets. A business is deemed “healthy,” i.e. profitable, even as those workers it lays off have seen their lives disrupted if not destroyed through loss of income...

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