The Cost of a Free Market

If the Bureau of Labor Statistics reports that unemployment has decreased, but there is no corresponding report of an increase in the total jobs available in the economy, which of the following conditions is necessarily true?

a. current equilibrium is at full-employment output
b. the Federal Reserve is selling bonds in open-market operations
c. the money supply is expanding
d. net capital inflows are increasing
e. the number of discouraged workers is increasing

The correct answer is e. Sadly, this AP Macroeconomics question comes directly from recent data that show precisely what the question indicates. Where are the jobs?

Free-market boosters like to point out that companies can make jobs where labor is cheap. The jobs help the local economy and then, when the economy has been helped out and the wages rise, those same corporations go somewhere else to find cheaper labor. They’ll say this is a win-win situation.

Except when those corporations pack up and leave, the people left without the jobs face massive structural unemployment. Nobody is demanding their skills, so they have to make their way as best they can. Kind of like Detroit.

And that’s the new model for America: a city that’s seen better days, but now it has trouble scraping enough money together to fix the potholes. In their search for profits, the corporations built up with the idea of serving up a portion of the American Dream to one and all kept the profits and moved their jobs elsewhere.

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