Monday, October 03, 2011

too late for the unemployed?

SeekingAlpha | The debate between cyclical and structural unemployment arose last year. At this point, it looks like Federal Reserve policymakers increasingly favor the structural side of the debate. Federal Reserve Chairman Ben Bernanke, speaking at Jackson Hole, suggested that cyclical unemployment remains the primary economic challenge:
Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view--the exception to which I alluded earlier. Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow.
Note that he does not conclude the long-term unemployed are by definition structurally unemployed. Still, he continues to suggest that cyclical unemployment can turn structural:
In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.

But, as is well known, he throughs the ball to the fiscal authorities:

Notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. We have heard a great deal lately about federal fiscal policy in the United States, so I will close with some thoughts on that topic, focusing on the role of fiscal policy in promoting stability and growth.

But is it already too late? Has the cyclical unemployment turned strutural? This week, serial-dissenter Philadelphia Federal Reserve President Charles Plosser embraced the structural view:

These numbers are troubling, especially when more than 40 percent of the unemployed, or some 6 million people, have been out of work for 27 weeks or longer. This underscores that we should not expect any easy solution. Millions of unemployed workers may take longer to find jobs because their skills have depreciated or they may need to seek employment in other sectors. These structural issues will take time to resolve. Jobs and workers will need to be reallocated across the economy, which is a long and slow process.

Plosser takes the rise in long-term unemployment as an indication of structural unemployment. He then extends the point to fight the last war:
We have provided a great deal of monetary accommodation to the economy, and given the stubbornness of the unemployment rate in responding to these efforts, we should be cautious and vigilant that our previous accommodative policies do not translate into a steady rise in inflation over the medium term even while the unemployment rate remains elevated. Creating an environment of stagflation, reminiscent of the 1970s, will not help businesses, the unemployed, or the consumer. It is an outcome we must carefully guard against.
Likewise, the centrist Atlanta Federal Reserve President Dennis Lockhart also speaks of structural factors with respect to the long-term unemployed, even invoking a comparison with Europe:


nanakwame said...

Well some of us called it. With the meanness in politics blessed by the cleric mantra that g_d loves well-to-do, and silver tongue, it has come to bite us. And those who feel this wasn't fueled by racist and biases, need to STFU. All we had to do was watch the Black Church and its present day motion. Structural unemployment has been here since 1970's, it can't be hidden any longer. It will be a self-wound for decades to come.


Rembom said...

Why doesn't a supply-and-demand analysis hold here, as applied to the labor market?  If our current unemployment were caused by a skills shortage (demand), wouldn't the wages (price) for those skills be going up?  Is there any evidence that US wages are going up?  On the contrary, I think the evidence is that wages are going down, or staying flat at best.  If so, the conclusion would be that current US unemployment is not caused by a skills shortage.

"Structural unemployment is a form of unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment."

Rembom said...

Oops.  Should have said "skills shortage (supply)".