Peace: Lessons from the Unemployment Rate

Why do economists call the unemployment rate a lagging indicator but call personal income a coincident indicator? Lagging indicators change after the economy has already begun to follow a particular pattern or trend and can be used as evidencethat long-term economic trends have occurred. Coincident indicators change directly and simultaneously with the business cycle and reflect the current state of the economy. There are also leading indicators that change before the economy begins to follow a particular pattern or trend and can be used to predict changes in the economy. Clearly, there is a direct relationship between a measure of personal income and the unemployment rate but I think the difference in treatment is related to the unique relationship that exists between the trend of the economy and the unemployment rate. This unexplored aspect of the relationship has a powerful lesson for us that goes far beyond the immediate need to create jobs for the unemployed.

A change in the employment rate is not always related to long-term changes in the economy. Even in a good economic climate there may be a net increase in the ranks of the unemployed because of first time entrants into the job market, those who are fired from their jobs because they are not contributing to the growth of the company, those who leave their jobs without first finding another job, or because a business fails. This means that an increase in the unemployment rate is not always indicative of a long-term downward change in economic trends. On the other hand, the reason why the unemployment rate does not behave like a coincident indicator is because it is solely dependent on the actions of those who provide employment. A negative change in the economic climate is never a reason why a worker voluntarily gives up a job. Workers will hold on to their jobs for as long as they can.

When an employer begins to feel the effects of a downward turn in the economy he makes two calculations before deciding to reduce his workforce. First, he considers the effects the reduction will have on the viability of his company if the downturn is not as long lasting as he imagines. He could lay off good workers and never get them back because they found new jobs before he realizes his error. Secondly, there is concern for the welfare of his employees. An employer understands that the welfare of his employees’ families depends on their wages and will only lay them off when he is absolutely unable to continue paying them. It appears that in the context of the changing economy the unemployment rate is driven more by a concern for survival than by economic figures?

Employers want employees who can help their companies and business to thrive. This is the reason they conduct interviews. Job announcements identify individuals who have the skills required for the jobs that are available, but the interview identifies the individuals who will contribute to the health and growth of the enterprise. Even in a strong economy an employer will fire any employee who is not helping to build the company and will, in a deteriorating economy, hold on to a valued employee as long as he can. We can be certain that the purpose of the human workforce, without exception, is to promote the health and welfare of one organization or other. In a few cases an employee will remain on a job even though he is not committed to the success of the institution but then he is motivated by his own survival. What does it mean for the future and well-being of humanity if every member of the human workforce is working to maintain an organization, while there is not one person who is working to maintain the human species?

The assumption appears to be that the future of the species is bound up in the future of our institutions and if we maintain the health of our institutions we automatically will maintain the health of the species. This is a noble assumption but it fails in light of the fact that all our institutions are not working cooperatively. The stark reality is that healthy institutions to not guarantee a healthy species. If no employer would knowingly maintain on his payroll an employee who is working to undermine his business enterprise how can we justify a condition in which not one member of the human workforce is working for the species?

Thoughts?​