Multiplier: Cause and Effect

Economic multipliers are always discussed, but to take the discussion out of abstract form and into reality, let’s look inside today’s dismal unemployment numbers:

The economy shed 651,000 jobs in February, pushing the unemployment rate up to 8.1 percent […]

The goods-producing sector shed 276,000 jobs in February while services lost 375,000. Within the goods-producing sector, manufacturing lost 168,000 jobs.

More than double service sector jobs were lost than manufacturing jobs.  Here’s why:

Manufacturing jobs have a great multiplier for two reasons: A) they pay decent, middle class wages; and B) you need goods to manufacture product.

Wages are important for consumption.  Without high wages, workers in the services sector suffer because they are less workers shopping, eating out at restaurants, watching movies, etc.  Additionally, manufacturing jobs keep other workers employed.  A GM employee keeps workers in steel, glass, and plastic production industries employed since you need those materials to build a car.

We see this multiplier reflected in today’s job numbers.  128,000 manufacturing jobs lost, but 375,000 sector sector jobs are lost — more than double the amount of manufacturing jobs.  Along with the 108,000 non-manufacturing goods producing jobs lost, what I’m seeing in action here is a multiplier.

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