Why unemployment rate goes up the elevator then down by the stairs

Politicians are talking about how unemployment goes up by the elevator and comes down by the stairs. But, as many of them have never run a business in their life, I bet they have no real idea why.

Well, here is the plain English version.

When things are good (like when Australia has had 28 odd years without a recession), just about every business adds in some fat.

Their processes get bloated. Things take too long, they use more people then they really need. They add that extra back office staff member that is not really adding value to the customer.

And when the sh#t hits the fan like it has because of these government mandated shut downs, business owners start to have a critical look at their business. They have too, or they will be forced to close the doors.

Typically, they start at the most expensive part of their business, which for many businesses is people. They look at what they can do reduce staff costs, not just for the short term but the long term. For instance:

What technology can they deploy to remove people?
What processes, systems, staff are not adding value. Can they remove this and reduce costs?
What roadblocks have been put place. For example, have they added too many layers of people between the doers and the customers?
Can they work their staff smarter?
Can they outsourced and use cheaper (often overseas) resources?

The end result is that even if revenue returns to the same level as previously, the smart business owners will now be doing this with less staff. The other business owners will have shut their doors.

And if these people are not employed, they become unemployed.

And it now takes time for the economy to grow, for business owner to get lazy and add fat again, before the unemployment rate slowly drops.

That’s why unemployment goes up by the elevator and comes down by the stairs. And it will be no different this time.

The only thing that can be done now is to stop the elevator before we get to the top floor.

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