Despite Slowdown, Unemployment Remains Low
April 2, 2001
According to official government data, the economy is in a slowdown that began more than a year ago, says Bruce Bartlett. However, unlike past slowdowns, the unemployment rate has barely budged, which may be evidence there really is a "New Economy." (See figure)
People being laid off are finding new jobs relatively easily, and that may be because many of those laid off have New Economy Skills.
- There are a limited number of people at present technically skilled to create web sites and do Internet-related work.
- For some time, they were locked up in the dot-com bubble, working for peanuts and oodles of stock options.
- Most of these dot-comers couldn't realize their profits because of laws that prohibit "insiders" from selling their stock, and when the bubble burst, they were often left with nothing.
But they still have skills of great value, which many "Old Economy" companies have needed but couldn't afford. Now that the premium on that labor has fallen, it is moving to traditional businesses, where it has great potential for raising efficiency and profits.
The result is that the New Economy will spread into the Old Economy much more rapidly, which will raise growth for the whole economy both in the short- and long-term.
Another factor lessening the impact of the slowdown is that many workers in the New Economy have flexible compensation packages, with large stock options. Their employers are not stuck with cash flow requirements they cannot meet. So the falloff in revenue at many New Economy companies has been absorbed more easily than at Old Economy companies saddled with union contracts -- which can only cut labor costs by laying off workers.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, April 2, 2001.
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