Changes in Macro-Economy and Occupational Distribution of Labor Force

Changes in the Macro-economy:

The structure of the macro-economy isn’t set in stone. As time spend the economy changes. As well as the patterns of aggregate economic activity that macroeconomics studies change too. Consumers’ opportunities as well as spending patterns change. Industries grow as well as shrink. The role of international trade progressively expands. The role of the government varies too increasing sharply during the New Deal era of the 1930s and the Great Society era of the late 1960s and early 1970s. It would be surprising certainly if the patterns of macroeconomic fluctuations remained unchanged as all of these factors that underpin the macro-economy change.

Occupational Distribution of the Labor Force:

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Legend: A thousand years ago about everyone was a farmer. Even in 1900 almost one-third of the labor force was made up of farmers. At present the occupational distribution of the labor force is very different. The industries of the industrial revolution mining, manufacturing and construction—still employ a quarter of our labor force. However most of today’s workers are in the service sector several of them in information-intensive services.

Over the past century the structure of contemporary industrial economies has changed by some measures at least more than in the whole previous millennium. Among the year 1100 and the start of the U.S. Civil War in 1860 the divide of the labor force engaged in agriculture fell from perhaps 80 percent to perhaps 50 percent. However between the Civil War of the 1860s and the end of the twentieth century the share of the U.S. labor force occupied in agriculture fell from 50 percent to 2 percent. Today in America there are more groundskeepers, producers and gardeners and distributors of ornamental plants than there are farmers and farm laborers.

The decline of agriculture is not the only main shift in the economy’s occupational and industrial distribution. A century ago possibly 40 % of the labor forces were engaged in manufacturing, mining and construction- the non-agricultural industries that still required heavy lifting. Today possibly 25 percent of the labor force are so engaged. The drop in relative employment in these industries has been offset by an increase in service-sector employment—both traditional services as well as what one might call information-intensive services as well.

Furthermore a hundred years ago the government’s social insurance state was barely in embryo the tax system wasn’t at all progressive and most households found it very difficult to borrow in order to see themselves through a year of low income and of unemployment. Nowadays by contrast the American financial system loans immense amounts of money to all kinds of consumers. In standard economic theory that must allow them to smooth their consumption spending. Households must be able to greatly reduce the impact of changes in their incomes on changes in consumption and so reduce the marginal propensity to consume. Such decreases in the marginal propensity to consume should carry along with them a substantial reduction in the size of the multiplier. The same grasp true for automatic stabilizers. They appear to apply a powerful stabilizing force on the economy. They weren’t present a century ago.

Furthermore the past century has as well seen the rise of financial automatic stabilizers like deposit insurance. One main factor making depressions (most notably the Great Depression) larger in the distant past was the fear that you needed to pull your money out of the bank and hide it underneath your mattress for the reason that your bank might fail. Such sudden raises in the demand for cash during financial panics caused interest rates to spike investment to fall and production to decline. At present the existence of a large deposit insurance system has all but eliminated this fear.

Furthermore the pace as well as direction of material progress changed. Reverse in the late nineteenth century the bulk of improvements in labor productivity came from capital deepening- the building-up of the infrastructure and the factories of the country. In the twentieth century the bulk of enhancements in labor productivity came from improvements in the efficiency of labor themselves produced by improvements in science and technology- inventions and innovations in materials handling, materials production and organization.

The share of economic action oriented toward the future increased as well. Research as well as development became not a casual by-product of the rest of economic activity however an organized branch of industry and a key component of investment. At least partially as a result labor efficiency growth in the twentieth century proceeded at twice the pace of labor efficiency growth of the nineteenth century. And there are only some if any signs that the pace of growth in the early twenty-first century will be slower.

Yet in spite of each of these changes in the structure of the economy the U.S. economy's business cycle has continued. The patterns of the business cycle we observe today would seem very familiar to those who watched business cycles late in the nineteenth century. Everything as well in the economy changes yet the business cycle seems to stay largely the same. There are a few signs that fluctuations in unemployment have become smaller in recent years (and many signs that the 1930s saw the extraordinarily violent business cycle of the Great Depression). However the major lesson is that—in spite of a number of structural changes that one would have thought likely to diminish the size of the business cycle—it remains and has remained largely the same.

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