Lack of Demand?

Earlier I displayed some data on output and factor usage in the manufacturing and home construction industries. Those were clearly cases of lack of demand: people wanted to buy less of those items, so suppliers produced less of them and used less capital and labor in the process. It’s no surprise that, say, a 20 percent reduction in what customers purchase would reduce usage of labor and capital by about 20 percent.

Manufacturing and home construction together were only about 15 percent of the overall private sector, so it worthwhile to look at the rest of the private sector industries. The chart below shows that rest of the industries are STILL PRODUCING at pre-recession levels. Unlike the home construction and manufacturing industries, these industries cannot (on average) blame their drastic labor cuts on a lack of production: they are still producing and earning real incomes like before, but have decided to do so with a much smaller workforce.

About Casey B. Mulligan 76 Articles

Affiliation: University of Chicago

Casey B. Mulligan is a Professor in the Department of Economics. Mulligan first joined the University of Chicago in 1991 as a graduate student, and received his Ph.D. in Economics from the University of Chicago in 1993.

He has also served as a Visiting Professor teaching public economics at Harvard University, Clemson University, and Irving B. Harris Graduate School of Public Policy Studies at the University of Chicago.

Mulligan is author of the 1997 book Parental Priorities and Economic Inequality, which studies economic models of, and statistical evidence on, the intergenerational transmission of economic status. His recent research is concerned with capital and labor taxation, with particular emphasis on tax incidence and positive theories of public policy. His recent work includes Market Responses to the Panic of 2008 (a book-in-process with Chicago graduate student Luke Threinen) and published articles such as “Selection, Investment, and Women’s Relative Wages,” “Deadweight Costs and the Size of Government,” “Do Democracies have Different Public Policies than Nondemocracies?,” “The Extent of the Market and the Supply of Regulation,” “What do Aggregate Consumption Euler Equations Say about the Capital Income Tax Burden?,” and “Public Policies as Specification Errors.” Mulligan has reported on some of these results in the Chicago Tribune, the Chicago Sun-Times, the Wall Street Journal, and the New York Times.

He is affiliated with a number of professional organizations, including the National Bureau of Economic Research, the George J. Stigler Center for the Study of the Economy and the State, and the Population Research Center. He is also the recipient of numerous awards and fellowships, including those from the National Science Foundation, the Alfred P. Sloan Foundation, the Smith- Richardson Foundation, and the John M. Olin Foundation.

Visit: Supply and Demand (in that order)

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