Unemployment Is Cyclical: Taking Jeffrey Sachs to School
|Monday, 06 August 2012 15:08|
Jeffrey Sachs has played a useful role in challenging the economic orthodoxy in many areas over the last three years. However, when he tries to tell us that the current downturn is structural not cyclical he is way over his head in the quicksand of the orthodoxy.
Let's start with his simple bold assertion:
"Consider the new U.S. unemployment announcement. If you are a college graduate, there is no employment crisis. 72.7 percent of the college-educated population age-25 and over is working. The unemployment rate is 4.1 percent. Incomes are good."
Umm, no, that's not right. If we go back to 2007 we would see that the unemployment rate for college grads was 1.9 percent at its low that year, less than half of the current rate. It averaged 1.6 percent in 2000.
Unemployment Rate for College Grads, 25 years and Over
Source: Bureau of Labor Statistics.
If the current unemployment in the U.S. economy were structural than we should expect to see lower than normal for these college grads whose labor is in short supply. Instead, we see that their unemployment rate is more than twice the pre-recession level and close two and half times its 2000 level.
We should also expect to see that real wages for college grads are rising rapidly. They aren't. They have not even kept pace with inflation for the last dozen years.
In short, Sachs does not even have the beginning of an argument here. He'd better find some new data or give up his argument that the causes of unemployment are structural. His data indicate the opposite.