Published: March 24, 2004 in Knowledge@Wharton On March 5, the U.S. Labor Department announced that the U.S. economy had created only 21,000 new jobs in February. Not only was this far below the 150,000 that economists had predicted, it wasn’t even enough to keep pace with the country’s population growth. The unemployment rate held steady at 5.6%, but only because many people have given up on finding jobs.

 

The U.S. economy has been growing since the fourth quarter of 2001, yet few employers are hiring. In fact, the country has lost 2.2 million jobs since 2001. As an article in The New York Times recently noted, “At no other point since World War II has the economy grown for such a long period without adding jobs at a healthy pace.” 

 

Economists and other employment experts are stumped. They offer a host of possible explanations – ranging from productivity gains and uncertainty surrounding the Iraq war to fundamental changes in how companies are run – but almost without exception they caution that their hypotheses are, at best, educated guesses. Ben S. Bernanke, a member of the Board of Governors of the Federal Reserve System, noted in a speech last November at Carnegie Mellon that he was somewhat stumped by what has come to be known as the “jobless recovery.”

 

One thing experts at Wharton agree on is that the phenomenon known as ‘offshoring’ – replacing U.S. jobs with those in lower-wage countries such as India and China – accounts for a far smaller percentage than some politicians and pundits claim. “The fears are far greater than the facts,” says Ravi Aron, Wharton professor of operations and information management, who has studied the phenomenon for five years. “You hear all these fantastic projections, but the real numbers are puny compared with the normal churn in the economy.”

 

A key driver of that normal churn is worker productivity.
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