As I was brushing up on my economic for the quarter, I realized something. According to Keynesian economic theory, employment is a function of change. Workers change jobs, consumers change preferences, employers change workers. In all, there is a certain amount of change that is going to happen in the given economic area and that is what is called full employment or the natural rate of unemployment. As workers find new jobs, the unemployment rate goes down. A recession is when employment falls below the full employment rate.

Now, one of the assumptions many economists make is that as employers require workers with a higher quality, they are willing to pay a premium for the right workers in order to accomplish higher levels of tasks. The reason they do this is because there is a cost associated with the training of a new worker. Turnover costs make up a large part of the reason why some workers are paid more for their work than others. So, as a result workers with more valuable skills experience greater lengths of unemployment because their jobs are more scarce than unskilled workers and the turnover rate at those jobs is much lower due to high turnover costs.

Therefore, for an economy such as the United States, which has experienced the greatest increase in college graduates in generations, does it not also make sense that the full employment rate for a highly skilled workforce would be higher than it were a generation ago when many of the jobs were not as highly skilled as jobs in the modern world are? And if the rate of full employment increases due to the fact of a highly skilled workforce, what happens to those workers who are only receiving a length of time for unemployment benefits that makes sense in a lower-skilled workforce? Hypothetically, for instance, at full employment a generation ago 5 out of 100 people might be looking for work compared with 95 out of 100 who are employed. However a generation later, at full employment 10 people out of 100 might be looking for work compared with 90 out of a 100 who are employed. The difference is generational, by which I mean to say that a more highly skilled workforce, which I think few would argue has arisen in the past generation, will experience a higher rate of natural unemployment compared to the generation previous.

So, what does all this mean for our nation right now? Well, for one thing, the length of unemployment benefits may require retooling. As Congress approves yet another round of unemployment benefit extensions, this is one of the debates that has gone seriously lacking for the past few years since the recession started. A generational shift has occurred and the current level of unemployment benefits is left wanting. Currently, the states are individually responsible for administrating unemployment benefits and some benefits are subsidized by the Federal government. They range generally from six months to one year. This is inadequate and should be looked at.

Christmas Madness

As the Christmas season comes to a head, we look back at the things that brought us to such a successful Christmas season. Retail sales look to be heading to their best year since 1999 according to CNBC. And I think we all can reminisce about how terrible for retail sales 2009 was. This brings us to a good point to remember in the midst of a recession.



While the years of a recession may seem harder than a block of steel wrapped inside concrete with the remains of last year's fruit cake all over the side of it, it is an interesting point to remember that the years following a recession tend to be some of the best years up to that point. Despite those who say that anything following a recession is better than what the recession was, the fact still remains that post-recession years average higher returns than any other bull market. Why? My answer is pent up demand. During a recession one of the main effects of the recession is reduced spending by individuals and businesses. It's not as if the demand goes away. Unfortunately, the demand that people have for goods and services goes unfulfilled until people can again increase their spending. As a result of this pent up demand, spending after recessions often reaches record levels.



Unfulfilled demands abound in any society and that is what entrepreneurs call opportunity. America as the land of opportunity, I would argue, has some of the most underutilized resources of any country in the industrialized world. This is not a result of less productivity, as any economist can attest, we are some of the most productive societies on the planet. The simple reason is, not enough people. Our population is still considerably small relative to our productive capacity as a country. We have entire swaths of productive land in our country that goes unused not because it is useless for anything, but primarily because there are not enough people to work that land. While there is a significant conservation movement in the US, our resources more than outpace our productive capacity.

So, in conclusion, those of you out there in the Grand Valley and around the country, always be looking for new opportunities because that next idea may be your ticket out of the rat race and pent up demand is something that will eventually be realized. Grab your piece.