Income, Energy, And The Cost Of Unemployment

Economic data continues to steadily improve. Domestic demand for gasoline, diesel and automobiles provides a picture of coincident data follow-through.

We’re seeing the same splintering in recovery as everyone else, of course: this is how Personal Income and Real Personal Consumption Expenditures can be at record levels while we have widespread unemployment.

Still, Employee Compensation is now at a record level ($8.1195T), and along with Wage and Salary Disbursements, can only be considered a V-shaped recovery. This certainly implies that there is indeed the structural unemployment that most anticipated.  The real question:  what are the costs & effects of structural unemployment?  Is this an impediment to recovery?

This certainly implies that there is indeed the structural unemployment that most anticipated. The real question: what are the costs & effects of structural unemployment? Is this an impediment to recovery?

Cost per person

The answer is presently around $8,500 per year per unemployed person.  Of course, total Government Social Benefits to Persons is substantially higher ($2.3T in total) — and it is particularly curious to view it as a fraction of GDP (15.4%).


I would expect that upward trend to continue for the next decade.  It is in all our best interest to keep these programmes well funded, and backed by the productivity of a strong economy.  As we run into global commodity extraction limits and increasing competition for them, we’re going to see inflation compressing our margins whether we’re growing or not — so we’d better make sure we’re growing.

Wage growth has outpaced government benefit growth since mid-2010, reversing the inverse condition which had persisted since 2Q2008.


The evidence is in that the current level of government spending has created an environment where we can grow despite structural unemployment.  Ben Bernanke stated on 60-Minutes that the Federal Reserve’s assumption was that a minimum of 2% growth facilitated by the government was required to generate organic private sector growth.  So far, this model seems to be working.

Matt Busigan is a software engineer, amateur economist, investor, and seeker of α. This post originally appeared his blog Macrofuge.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.