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Unemployment: 1980-9
Critics of the Reagan administration try to portray it as an era of high unemployment. However, as can been seen in the table below, unemployment peaked in 1982-3 (the same time the tax cuts were being implemented) and then dropped steadily down to 5.2% in 1989. Clearly the tax rate cuts and economic expansion cut unemployment significantly—by 4.3%—after it had increased by 2.5% from 1980-2.
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Note that unemployment numbers are usually the last to decline in an expansion, and the one of the first to rise during/prior to a recession. The reason for this is that employees and their related expenses (health insurance, pensions, training, etc.) are usually one of the highest expenses a business has. During slow economic times a fast way to cut expenses is to lay off employees. Conversely, because they have such high costs associated with them, businesses usually wait until an expansion is well under way before hiring new people. While some criticize businesses for operating in this manner, we each act this way when dealing with our personal finances. If we think money is tight we will not purchase a new car, for example. Only after we are sure a pay raise or new job will work out will are we willing to spend more money. To do otherwise would be to risk the overall economic well being of our family. It is no different for a company. The long-term survival of the company is more important than a short-term economic downturn for any employees. After all, if the company goes out of business then no one associated with that company will have a job, nor will there be any jobs for those laid off to be hired back to when the economy recovers. The short-term dislocation (termed by some as creative or constructive destruction) helps enable future growth when new businesses can draw on this pool of available manpower. Indeed, the dramatic fall in unemployment was aided by new industries such as computer manufacturing, software and biotechnology that may not have grown as quickly without a pool of manpower to draw on during their formative years. In the end, the pro-growth economic policies paid off tremendously. Over 18 million jobs were created during the Reagan expansion. |
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