What Do We Mean When We Say "Structural Unemployment"? Part 1
This needs to be screamed far and wide from the highest mountain to the deepest sea, at the top of one’s lungs:
There is no reason to think that the bulk of current unemployment is any sense “structural”: if aggregate demand were higher it would melt away just as unemployment in 1982 melted away.
The following paragraph is more problematic, but could become self-fulfilling prophecy:
There is good reason to think that if we do nothing for the next two years and unemployment remains elevated that a good deal of unemployment then will be “structural,” not amenable to being cured by aggregate demand.
There’s a sleight-of-hand implicit in that second graf that I want to talk about, but work is interfering, so please feel free to talk amongst yourselves. Back later.
Screamed? Why? Without justifying the comment, it would be just one more bar-stool view. Let Baggers and Becks do the screaming, please. Anybody with half a brain and any sense of honesty should be willing to explain why they think something is true. Screaming just gets lost in the din.
From late 2006 till now, we have lost 1.4 mln specialty construction jobs. Why is that not structural? What skills do those workers have that we anticipate putting to use outside the building trades, where they very likely will never be needed again? In roughly the same period, we lost about 780k finance jobs. Do we think most of them will be re-employed in finance? Personally, I doubt it. Now, many of those workers do have skills that, with some training and experience, could serve well in other areas, but till the training is completed, why do we think they are not “structurally unemployed”?
There is structural unemployment, because we do have workers who are not well prepared to work in jobs that are available, or are likely to become available. There is structural umemployment because we have workers who are tied to homes that are not where they are most likely to find jobs.
Sorry, but just because an assertion doesn’t fit a particular political or economic agenda, no matter how much you may favor that agenda, does not mean the assertion is untrue.
When people assert it is structural they usually do mean housing and construction, but not so much because there were so many working in it, but because it was such a large revenue generator, a large aggregate demand generator, for the rest of the economy, both from wages and profits from it as well as increasing amounts of debt borrowed against it. We don’t have any other industry that can replace it and produce as much in short order. We can increase demand though it would increase inflation, reduce real wages, increase employment and exports, support those sectors that can afford to grow. This would not necessarily boost real growth, but it would provide work for those who want it and support for those that need it.
Clearly a good point about construction and finance, being smaller in the future. If we also move to techniques where modern methods rather than stick building is used, labor required would further decrease. A lot of these are old technologies, such as builders cutting the framing lumber at a central site and shipping at a minimum kits to the job site, or even preassmbled wall panels. But government has forbidden this with some building codes. Another example is a stick built roof versus roof trusses, a truss makes for a stronger roof with less lumber required.
In finance, I suspect the trend of the discount brokerage will result in the traditional customer facing brokers job fading away, just like the travel agent business has faded away.
I certainly do not think as clearly as the other commentators, but I think we get to the same point. Since the end of the 1990’s we have only kept unemployment down with a debt driven bubble economy. Although the 1990’s ended with a dot com bubble, I think there was real growth throughout the decade and that the low unemployment rates were sustainable as long as the pc revolution could carry the economy. Absent a similar defining industry, I think we have to face up to the likelihood of low growth and even with a lot of scrambling an unemployment rate above 7 and maybe 8%. I think Obama’s advisors were hoping that alternative energy could be the driver going forward, but without any cap and trade legislation and something of an energy glut given the world wide slowdown, it just isn’t happening. Over the long haul we can retrain, retool, better educate etc the labor force, but it will be slow, expensive and ultimately will produce only marginal improvements in our ability to compete in a global marketplace. Not a pretty picture, but that is the free market for you–looking ahead only to the next quarter.
Richard Koo, Chief Economist at Nomura at the Economist (DeLong is right):
When the deficit hawks manage to remove the fiscal stimulus while the private sector is still deleveraging, the economy collapses and re-enters the deflationary spiral. That weakness, in turn, prompts another fiscal stimulus, only to see it removed again by the deficit hawks once the economy stabilises. This unfortunate cycle can go on for years if the experience of post-1990 Japan is any guide. The net result is that the economy remains in the doldrums for years, and many unemployed workers will never find jobs in what appears to be structural unemployment even though there is nothing structural about their predicament. Japan took 15 years to come out of its balance sheet recession because of this unfortunate cycle where the necessary medicine was applied only intermittently.
While I suspect Rebecca may be right, I’d like to consider another possibility:
just exactly why do we need to “compete” in the global marketplace? let us produce what we do well. and let us buy and sell what we can and need to each other. we don’t have to “grow” forever. we could learn to live with less material goods and more time and better quality of life than spending it on airplanes and freeways in hotels and crummy jobs competing with subsitence wages in china.
That, my friend coberly, would be rational.
Makes sense, we will just look at U3 numbers as that represents true Unemployment. The numbers of people not in the Civilian Labor Force, having left it has grown and is measured by Participation Rate, a shrinking ratio since Fall of 2001.
Hell, yea its structural as Particpation Rate decreased since Fall of 2001, the first time it has done so in 40 years.We have not fully recovered since 2001 and never will recover with the gov and fed policies in place now.
Y’all–I remember being unemployed for an uncomfortably long time back in 1971. I earned enough money hand-caning antique chairs to help with the rent and keep us in food stamps. Then, I got my SSA job and we didn’t need food stamps anymore. But, my husband kept on fixing antiques and making custom furniture and I kept selling stuff I bought at garage sales whenever I got enough together to have a garage sale of my own.
You all know that I am very simple-minded. I keep wondering why we can’t make things and do things for ourselves. You know, make our own TV’s and cars and build good houses again. I live in one that’s a hundred years old. Yep, a hundred years old. And, it’s a damn good house, too, not one of these Chinese dry wall wonders people pay too much for now.
I have a hard time understanding how American people with money can decide that their own country isn’t worth investing in when every other government that can thinks it is. It seems crazy to me. The federal government could change this pretty quickly. But, there seems to be no profit in it. I thought profit was the concern of business, not the government. We live in interesting times and didn’t do anything to deserve that curse. Nancy O.
RE: “Why is that not structural?”
Because the technical definition of structural (as I understand it) refers to changes in technology, methods and modes of production. ie: the structure of production. In that model, there are simply costs to incurr as people move from one set of jobs to another.
Most of us are using the more intuitive meaning from architecture, implying ‘irreversible change’ that undermines the structure. In this sense, the intuitive sense, this is a structural change. Why? because these people are not easily moved into other occupations without cascading additional disruptions.
To answer a bit of the question, people are told that investment returns are better overseas than the us. Many investors think that they can beat the market, but its clear that on the average everyone does no better than the overall market less expenses. But people think they are more clever than the next fellow and can win.
Part of this is that we have embraced the throw away culture due to economics, its cheaper to get new than fix the old, partly because machines can build the new, but it takes humans to do repair. TVs are a perfect example, today no one repairs them because they are so cheap, which is true relative to the cost of a TV in the 50s. A color set today costs less than a color set in the 1950s in absolute dollars (not inflation adjusted). Its the same for laptops, I have an old laptop that needs a disk and the illumination tube of the screen replaced, but that would cost more than a new laptop, so why fix it?
Cars today are vastly different than cars made in say 1980 let alone 1940, they are essentially computer rooms on wheels, and with the emmission regs and so on no one could just build a car one piece at a time as the old song suggests.
For furniture which essentially as an unlimited lifetime. (I have a chest that dates to 1860 or so) it makes sense to repair and re-finish.
Lyle
I think that’s true enough. But I wonder if we really need a new computer every year.
On the other hand, if machines can make it so much more cheaply than humans, why does it follow that the humans are not allowed to eat?
I am guessing that as long as the only game in town is to make as much money as possible, those who play to win will assure that the rest of us lose… everything that makes life worth living.
For some reason this is very hard to explain to people. But all that would have to happen is that as people make less money, they buy less, or buy more carefully. Then all you have to do is arrange things so it is not a case of half the people having everything and the other half having nothing.
I am reasonably convinced that the alternative: growth for growth sake is somewhere between a cocaine addiction and a cancer.
This makes 1982 look like a church social, and ’82 was bad enough.
We have been hollowing out our economy (manufacturing first) and chasing the fantasy of a service economy into a blind alley. Turns out 90% of us will be servicing the other 10%.
Unemployment and underemployment are both cyclical and structural, underemployment being more structural.
Of course your point is well taken and has been made for over 2000 years. Stuff does not in the end create happiness. Given the fact that this point is made in Eastern as well as western religious traditions, its not clear that the problem is not at its root human nature, and as we have attempted to change it for 2000+ years and not succeeded it is unlikely to go away.
The concept of retail therapy is an interesting feature of this, the idea that you can buy more stuff to make you happy. Or taken to the irrational limit watch the shows on hoarders.
Lyle
2000 years? are you saying i should shut up about it already?
[ i don’t think people can depart much from the economy they find themselves in. still, if the word gets around, and more people find more ways to get off the treadmill… well, at least it doesn’t hurt to remind them of the possibilities. and if anyone ever elects me president i think i would rather work on that than on “growing the economy.” i do fear i might be making a big mistake. on the other hand it seems worth a try. ]
The process we are seeing now is:
Trade deficit increasing—-> High indebtedness of government, companies and families –> lower expectations of all the economic agents —> less investment (public and private) —->more outsourcing (less risky due to the slave labor conditions and any environmental constraints in emerging countries)—> less local industrial production —-> Unemployment increasing –> Lower wages –>Not any recovery in consumption expected –> lower expectations–>less local production—>Trade deficit increasing
The same process have been happening from more than 15 years ago, but to avoid the recession, the economy was based in a long succession of bubbles (mergers, dotcom, raw mats, real state…) and in the cheap credit (due to low interest rates), and the industrial outsourcing were growing exponentially, all in a unsustainable way.
Now the fiat money and their bubbles is gone, and we need a REAL economy based on the production of REAL products, not merely smoke
The administration needs to start to think on protectionist measures to reverse the outsourcing trend as the only way to create decent wages and to save the middle class from its collapse
Basically, while unemployment in particular sectors may very well be structural, overall unemployment is not – it’s not something that just ‘happens’ – choice are made, embedded in ideology that opt for that to be the way things ‘are’. Such as a tax system that currently favors capital over labour, for example. Or that the ‘worker’ or ‘jobseeker’ is entirely responsible for all training and education, including paying for it regardless of means, along with having the foresight 2-3 years down the road as to what the labor market demands will be when done such training (and assuming the information they’re basing these decisions on even accurately reflect the present at all – I’m reading of more newly trained but unemployed nurses for example).
I agree to that too. Again, it comes down to ideological choices being made. Why should our entire socio-economic existence be structured around efficiency and profit as though those are the only values that should exist? Not to mention so-called Libertarians who deny the ROI of government spending on infrastructure, R&D and enforcing rule of law.
A lot of the supply-side economics theories are being proven to be as ludicrous as some of us always suspected they were but the solution seems to be more of the same.
I’m by no means a socialist but even for capitalism to function there needs to be safeguards against monopoly powers and extreme social and economic stratification or we’ll be right back to the nobles and serfs of the middle ages.
At heart I’m actually an old conservative – and think that the most important thing should be to preserve as best as possible as large a middle class as possible – since this leads to lower crime and more stability, and that a ‘steady, decent paying job’ is what is most necessary in order for people to be able to raise stable families and form communities.
I guess I am saying you may win the bold try award with your arguement. The call for a simpler and slower life is not new, Thoreau called for it. and of course the idea of the rich man and the needle’s eye relates. It may well be tilting at windmills, and making some people think, but unfortunatly most don’t being driven by the advertising media to buy buy buy!!! Because the next new thing will make them happier. Its best to create a guilt factor to push the buying because guilt is a good emotion to drive people. (If you don’t get the newest dohickey for your kids you are denying them).
But the powers that be have determined that the old saying money can not buy happiness is to be made untrue. After all they convince you that the newest do dad will make you health wealth and wise. Many sages have said otherwise for a long time, but they don’t pay the bills.
We have created a society where many feel an urgent need to keep up with the Joneses even if they are broke.
Consider the idea of retail therapy, for depression, the thought if you go out and buy something if you are depressed, it will make you happy, its a common meme in our society, although the happiness is at best fleeting. (See shows on hoarders for the limiting case)
jessica
but its great to hear that. my guess is that the word is spreading.
Lyle… retail therapy works… the same way drugs work.
Jessica
you raise an interesting point. i have never understood why a minimum wage worker is expected to be self-entrepreneur, write a resume, dress for success, know how to interview, network, anticipate the job market and get the right education…
you’d think someone would make it their business…
We need a trade war. Debtor countries win in trade wars. Tax companies who offshore labor–at least payroll taxes on their offshored workers–ends any talk of a SS crisis. What would China do if we started imposing tariffs on their products? Sell off their bonds at a great loss? We don’t export anything but software (stolen by Chinese), entertainment (stolen by Chinese), and food–which China needs anyway.
The dollar might become devalued enough to make us competitive again. Oh, and also eliminate the distinction between capital gains and earned income–and increase the safety net for all the unemployed people of whom there are 5 people for every 1 job opening.
At the end, in my opinion, there must be a combination of fiscal stimulus, low interest rate, public investment, industrial policy, trade deficit reduction and tax havens closure as a way out of this nightmare
a.- The defense budget must be greatly reduced, and expend this money in infrastructures that acts as “economic multipliers”, for example= why not to build some nuclear power plants to have less energy imports, and have an advantage in production costs associated to the energy costs?. Also the green energy should be help in the research and development phase to get a real competitive energy prices
b.- The interest rates should be maintained low in the next years, as an incentive to the investment, and also to avoid the nightmare a high interest rate could pose to the people with variable interest mortgage that can give the keys of their houses to the banks in millions, and then wrecking havoc to the now damaged financial system
c.- There must have an industrial policy, helping new factories that produce jobs, and installing a “fair” trade policy, more than a “free” trade policy. USA cannot compete with an authoritarian state that maintains slavery labor conditions to his workers and no environmental constrains to the factories. This way of life in those countries are not sustainable in the long term, but before it collapses they could destroy all the industrial base of the western countries, now very depleted (except Germany of course). Also the technology and know-how provide by the public universities and research centers should be not allowed to be sent oversea to give an advantage to others countries that do not invest in this kind of things
d.- The tax cut for the rich must finish, also prosecute much hardly the black economy and tax havens where a huge amount of money is lost. The tax havens are really an scandal in this time, and nobody seems interested in close them
Those are some things to start to do