Urban Myth: Structural Unemployment in Today's Economy
|Written by Nicole Woo|
|Wednesday, 03 October 2012 10:15|
Journalists, pundits, politicians and the public will undoubtedly pay a lot of attention to the unemployment numbers that will be released this Friday. It's important to understand whether the reasons for current unemployment are mainly structural -- that worker's skills or geographic location don't match up to available jobs -- or cyclical -- that there just aren't enough jobs out there.
The distinction between structural and cyclical unemployment has crucial implications for economic policy. If unemployment is “structural” then government policy that seeks to increase demand – low interest rates or fiscal stimulus, for example – will have little or no effect on the national unemployment rate and could even make matters worse by igniting inflation. If unemployment is “cyclical,” however, then expansionary macroeconomic policy can lower unemployment substantially with little or no risk of inflation.
Their detailed paper, "Deconstructing Structural Unemployment," looks at 2 arguments for structural unemployment, and find little support for either:
The first argument is that if unemployment is structural, then there would be evidence that the large supply of unemployed construction workers lack the skills needed to find new jobs in other sectors of the economy. While construction workers have indeed suffered disproportionately in the downturn (due to the bursting of the housing bubble), it turns out that they have also been at least as successful in coping with the hostile labor market of recent years as workers displaced from other sectors. And construction workers’ skills are at least as well matched to the available jobs as workers displaced elsewhere in the economy.
Addressing more arguments for structural unemployment CEPR's Dean Baker blogs:
First, if there is a serious issue of structural unemployment then there should be some major sector(s) of the economy where the number of job openings outstrips the number of available workers. There is no major sector where the number of job openings is even half as large the number of unemployed workers from the industry.
Fourth, if the current unemployment in the U.S. economy were structural then we should expect to see lower than normal rates 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.
Since the recession began, respondents overwhelmingly have cited "poor sales," suggesting that today's unemployment is primarily due to a lack of demand. "Quality of labor," the factor most consistent with structural unemployment, barely made the list.
And if you don't believe CEPR, there are plenty of other experts that who've also thoroughly taken apart the structural unemployment myth. For example:
As Dean Baker has explained again and again:
The real story of this downturn seems very simple. We had a huge housing bubble that was driving the economy through its effect on consumption and residential construction. When it collapsed, it created a gap in demand on the order of $1.2-$1.5 trillion. There is no easy way for private sector demand to fill this gap.