2% Unemployment — The Greatest Story Never Told
Kurt Brouwer August 25th, 2007
We have been writing about how strong our economy is for several years now. And, even for the skeptics, the signs of a booming economy are becoming impossible to ignore.
For example, in Montana unemployment is running about 2% and some employers are having a hard time finding workers. In this AP article, AP Writer, Matt Gouras documents the difficulties of staffing in the Big Sky Country [emphasis added]:
‘…The owner of a fast food joint in Montana’s booming oil patch found himself outsourcing the drive-thru window to a Texas telemarketing firm, not because it’s cheaper but because he can’t find workers. Record low unemployment across parts of the West has created tough working conditions for business owners, who in places are being forced to boost wages or be creative to fill their jobs…
This should not be a surprise because that’s what happens in a market economy. When something is in short supply, the cost goes up.
…John Francis, who owns the McDonald’s in Sidney, Mont., said he tried advertising in the local newspaper and even offered up to $10 an hour to compete with higher-paying oil field jobs. Yet the only calls were from other business owners upset they would have to raise wages, too. Of course, Francis’ current employees also wanted a pay hike.
“I don’t know what the answer is,” Francis said. “There’s just nobody around that wants to work.”
Unemployment rates have been as low as 2 percent this year in places like Montana, and nearly as low in neighboring states. Economists cite such factors as an aging work force and booming tourism economies for the tight labor market…
The good news is that Montana was a state with high unemployment until quite recently. In fact, 15-20 years ago the unemployment rate was almost five times as high as today’s rate.
…For places like Montana, it has been a steady climb in the nearly two decades since the timber and mining industry recession. The state approached double-digit unemployment levels in the 1980s and began the slow crawl back in the early 1990s.
“This is actually the biggest economic story of our time, and we don’t quite grasp it because it is 15 years in the making,” said economist Larry Swanson, director of the O’Connor Center for the Rocky Mountain West at the University of Montana…’
Business is booming in Montana and other western states. This story paints this condition as a negative, but it’s not. Employers are complaining because they cannot find workers, but what that really means is they cannot find workers at the rates they want to pay.
So, they have a choice. Slow down the growth or pay up a bit. Either way, it’s a good problem to have. Much better than what they faced 15 years ago when there was little or no business to be had.
We are in the greatest economic environment this country has ever had. I hope we appreciate it. Long may it last.
Hat tip: BrothersJuddBlog
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If I recall correctly, I learned something in my econ courses that there’s the concept of Phillips’ curve - depicting the relationship between inflation and unemployment. If the 2% unemployment rate were the case, would we be worried, in your opinion, about inflation soaring in the near future? Or will natural economic forces take care of this for us (i.e. we’re at a level of natural unemployment) and the Fed would not lose any sleep over such news. I guess in the end this is still great news for the U.S.
Shawn–Economists have often wondered about the NAIRU–non-accelerating inflation rate of unemployment. In the early 1990s, Paul Krugman wrote on that and concluded it was around 6%. With productivity gains, though, it may be lower than that.
2% unemployment would almost certainly ignite a wage-price spiral to some extent.