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Home Publications Blogs Beat the Press Reuters Invents "Structural" Unemployment in the Absence of Any Evidence

Reuters Invents "Structural" Unemployment in the Absence of Any Evidence

Friday, 17 December 2010 17:31

Reuters decided to abandon evidence-based reporting in a news story that told readers that the United States is suffering from "structural" unemployment. The use of the term "structural" is important because it implies that the main reason that people are unemployed is that there is a mismatch between skills and the available jobs. The alternative explanation, is that we just need more demand in the economy to drastically increase employment levels.

There are certain pieces of evidence that economists would look to as evidence of structural unemployment. For example, there should be high rates of job openings, which would suggest that there are sectors of the economy or regions of the country in which employers are having difficulty finding workers. In fact, data from the Bureau of Labor Statistics show the job opening rate at 2.5 percent. This is above the 1.9 percent low hit last year, but only slightly higher than the 2.3 percent low from the last recession. It is well below the 3.4 percent pre-recession rate.

If the economy's main problem is structural unemployment then there also should be sectors where wages are rising rapidly as firms are forced to compete for an inadequate supply of skilled workers. There is no major sector of the economy where wages are rising substantially more than the rate of inflation.

If the main problem is structural unemployment then we should also expect to see sectors where workers are putting in large numbers of hours. The reason is that employers cannot find enough workers so they pay over-time wages and other premiums to get the available workers to put in more time. Again, there is no major sector of the economy where average weekly hours has even risen to its pre-recession level.

In short, this article presents no evidence whatsoever that the U.S. economy is suffering from structural unemployment. The focus of the article is the decline in the manufacturing industry, and especially the auto industry, in the Midwest. However, there are always declining sectors of the economy. The question is whether these sectors are large enough and the workers in these sectors sufficiently ill-prepared for other lines of work to lead to structural unemployment in an otherwise growing economy. This lengthy piece provides no evidence to suggest that this is the case.

Remarkably, in a piece that includes many references to international competition, there is no discussion whatsoever of the value of the dollar. In a system of floating exchange rates, like what we currently have, a large trade deficit is supposed to adjust through a decline in the value of a country's currency. Such adjustment has not happened in the case of the United States due to a deliberate policy of both the United States (in the Clinton administration) and some of our trading partners in keeping the value of the dollar up.

The piece also includes the bizarre assertion that manufacturing workers in the United States are uniquely unable to compete internationally. In fact, our more highly educated workers, like doctors, lawyers, and accountants are even less competitive with their counterparts in the developing world. However, professionals have the political power to sustain and even increase the barriers to foreign competition. By contrast, U.S. trade policy has been quite explicitly focused on subjecting U.S. manufacturing workers to such competition.

The article also seriously misrepresents the experience of Germany, its model of a successful wealthy country. While it did have substantial reforms of its labor market, it did not have a long period of double-digit unemployment as this piece implies. Germany also did not have sharp declines in wages. Compensation for manufacturing workers continued to rise over the last decade and is currently almost 50 percent higher than in the United States.

Comments (8)Add Comment
written by izzatzo, December 17, 2010 5:42

Also see Krugman at this link on hires, total separations and employment data.
high tech and medical begging for workers, Low-rated comment [Show]
RE: high tech and medical begging for workers
written by tomm, December 17, 2010 7:38
Pete, I'm guessing reading comprehension isn't your strong suit. Dean pointed out that manufacturing workers in Germany make almost 50% more than American manufacturing workers, yet don't suffer the unemployment rate that Americans do. So when you say U.S. manufacturing workers are too pricey in the global market, apparently you don't consider Germany to be part of this world...
written by bakho, December 18, 2010 6:27
People are using the term "structural unemployment" to mean things that it does not mean.

Even if there were structural unemployment, there are a lot of things that governments could do to address that problem such as workforce training and immigration standards to meet demand for labor. There are ideologues that do not want any government action, no matter how much good it might do. They have usurped the vocabulary and have our elites focusing on "deficit" rather than unemployment.
written by AndrewS, December 18, 2010 8:47
Hi tech is begging for H1 Visas so they can hire CHEAPER recent foreign grad students. We have no structural shortage of hi-tech workers.
If one reports just the fact, well then that is biased reporting.
written by Scott ffolliott, December 20, 2010 2:45
"Reuters decided to abandon evidence-based reporting in a news story."
So they now have joined the NYTimes, the Washington Post, fox News and CNN in reporting on narratives rather than facts. Facts have long been the source of confusion with reporters who have to an obligation to report competing narratives to give a balance story without having to resort to clarity that comes from factual reports. When everyone’s point of view is reported then we have fair and balanced reporting. If one reports just the fact, well then that is biased reporting. We shan’t have any of that.
Decline of the USD
written by Mike Ballard , December 20, 2010 7:51
Why is it that Germany's ruling class has been able to make lots of profits with a strong Euro? Arguing for a lower USD is like arguing for a race to the bottom of the wage heap in the USA in order to satisfy capitalists who're only in it for a greater rate of profit. What needs looking at is the export of industrial capital by US rulers to other countries where wage levels and currency levels are low and kept low by more dictatorial political States.
written by Charles Peterson, December 21, 2010 12:21
Apparently the new "structure" hasn't been created or even imagined yet. That's why there are no new hiring, just new firing. But we can sort of imagine what kind of structure is being summoned by the commentariat.

That's the new structure which will to allow US wealthy to become ever wealthier and continue buying up foreign stuff cheap, while nobody buys anything from US.

Actually, we do need a new structure, such as one in which outsourcing manufacturing is discouraged, but it's not the kind being summoned, so it can't be discussed.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.