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In a recent good-news bad-news story, the former Newsweek Editor, Mr Fareed Zakaria, writes ‘The good news is that the American economy is back to its pre-crisis size. The bad news is that we are producing the same $13.5 trillion worth of goods and services with 7 million fewer workers'.
This is not an unexpected stroke of luck. It is entirely expected. In downturns, it is invariably the least productive who are let go first.
This also motivates those who might be next in line. Not everyone will agree that this is bad news.
It is because of this advantage of flexible labour markets that the Fed Chairman, Mr Ben Bernanke, took a somewhat philosophic line in his testimony to the Financial Crisis Inquiry Commission; saying that despite higher current joblessness in the US, ‘I don't think I would want to trade our labour markets, in general, for German labour markets. They're less efficient (read over-protected) and have higher average unemployment rates over longer periods'.
Translation: People are reluctant to hire people whom they cannot get rid off; whom they might find themselves permanently stuck with.
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