Efficiency prevails over new jobs

The US economy is back on the rise again, but the unemployment figures remain at the same level. After a  economic downturns,  it can take a while before unemployment decreases in spite of governmental policy.

Efficiency

There are basically 2 main reasons why the unemployment rate in the US but also in many other countries remains at a high level in spite of improving turnover and better margins. The first one is the drive to more efficiency.

The economic crisis has led within companies to a revisited strategy in regard to their processes.  Many people, especially low educated, were laid off. During this transition period, organizations found new ways to keep up the process with fewer people. Crisis always lead to new insight, due to the pressure of the economic downturn. As now the world economy slowly starts to pick up, organizations can still perform without the need for newly hired.

Reluctant

On the other side, quick investment in new hires right after a crisis is unusual. Business is reluctant to do so and rather waits whether the economic recovery is sustainable.  Companies wait untill they actually start to grow so that new jobs will represent economic value to them, although their profit figures gives them a chance to hire. It is plain common sense from a business perspective.

Another secondary effect is that a lot of low educated employees which were laid off, have much more problems to get a new job. Their economic value has decreased over time.  Besides that, many reintegration project, also in The Netherlands, focus more on employees which are better prepared and educated. Reintegration projects tend to focus on those that are successful as the reintegration companies are evaluated on their performance. And one of the performance drivers is their ability to help people towards a new job.

As a result an entire group of low educated people with hardly any chance for a new job, remain at the side line. This should worry the government as it will result in a hidden and grinding poverty. The policy of the government should aim at this group, instead of just helping those who can help themselves or giving business all kinds of tax relief’s which barely works.

Source: NRC