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Unemployment: Cyclical or structural?
Job seekers attend a state-sponsored career and job resource fair in Denver, Colo.
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TEXT OF INTERVIEW
BILL RADKE: The government's monthly employment report comes out tomorrow. And it doesn't look like our unemployment rate will come down then, or any time soon. But will it come down eventually and how will that happen? Economists are debating exactly that question, says Marketplace's economics editor Chris Farrell. Good morning, Chris.
CHRIS FARRELL: Good morning.
RADKE: So I know the more liberal economists, the Paul Krugman's of the world, have been saying the government should spend more to bring back jobs.
FARRELL: Well that's right. They're saying this unemployment is cyclical. Now that's a fancy term for this dynamic -- the economy's weak, employees aren't hiring; if the government can stimulate the economy, the economy really starts growing, then employers will hire workers, the unemployment rate will fall. But here's the thing, Bill. There's some really respected economists, they're saying, "No, no no. Hold on. This high unemployment isn't cyclical, it's structural."
RADKE: Yeah, structural. What do they mean by that?
FARRELL: What they mean is companies have jobs, but they can't find the skilled workers they need. The workers want to work, but they don't have the skills to get the job. So think laid-off construction worker, Silicon Valley firm hiring programmers.
RADKE: So which is it, Chris -- cyclical or structural? And why is that so important?
FARRELL: Look, it's both and I mean that very seriously. On the one hand, this economy is very weak and therefore, if it starts growing, the unemployment rate will start coming down. But there's also a fundamental problem in our economy, Bill. That is we have too many poorly educated workers for the kind of jobs that are being created. But here's the other thing. I want to just add one other twist: The real worry is the longer this economy grows slowly, the more structural unemployment will become.
RADKE: And why is that? What happens to jobs and to workers in a long economic slump?
FARRELL: Look, life is not fair. But what happens is you become rusty. You fall behind changes in your industry. And employers? They start looking at the unemployed workers' damaged goods and it feeds on itself. And it is bad for everyone.
RADKE: OK. On that cheery note, thank you for laying that out for us. Chris Farrell, our economics editor, we appreciate it.
FARRELL: Thanks, Bill.
Another part of the structural unemployment is use of contract/consulting/temporary workers. Those who are without work for long enough, will take anything, including a short term contract position. However: these are 'reluctantly self-employed' - meaning many are 1099 (not W-2 employees) without standard health/savings benefits and certainly no Social Security/unemployment insurance paid on their behalf. 2. If between assignments, they're NOT among those counted for unemployment figures (they're not eligible), 3. This is an option which provides income, but not much more than that. Also - rates for contract professionals have been driven down by the surplus of labor. One may have made $50 an hour in an IT consulting opportunity - now it's great if it's even $30. Just to round out the picture here....
Two points: 1)The US rewards businesses that relocate jobs overseas with tax credits and breaks for the costs of closing the plants and moving out. So our tax dollars pay for our communities and neighbors to lose jobs and depletes our tax base, money for schools and infrastructure, etc. 2) Robert Reich has suggested that we need to have re-employment insurance, so people could update their skills while unemployed. Here in Michigan and in many other states people who collect unemployment can't go back to school while they are on unemployment. We need policies that make sense for the way that things have changed. We can't just throw away millions of workers and their families. I don't hear any plan from either political party about what they are going to do about this other than "it's going to take a long time," and cut taxes for the wealthy. Perhaps you could look for stories and ideas where people actually are assisted to get back to work.
Two comments re: Unemployment: Cyclical or structural. One, the comment about "liberal economists like Paul Krugman"..."respected economists..." - this implies that Paul Krugman is not a well respected economist and by not identifying either by ideology (since you identified Mr Krugman's) or name the "well respected" economists, I hear it as propaganda, similar to "they" said or "our" experts, leaving us no way to verify or research "them". Two, I agree it is both structural and cyclical - this would have been a great place to make the point that decreasing funding for education is NOT the way to fix the problem (as many governors are doing right now) and to highlight programs that are helping with the structural side of this. As a side note, it seems your program is becoming more and more conservative, republican in nature - just stick with the stories and leave out your views, both overt and covert. Thank you - Lorri
US had lost millions of manufacturing and service jobs to China & India in the last 15 years. It is not that easy to bring those jobs back. Having said that, how are we going to get back nearly 15 million of those jobs exported to these countries? There is hardly any interest in business corporations to bring those jobs back. In fact, more and more jobs are leaving this country at a higher pace. That is a huge part of the structural change behind the current unemployment. I wish NPR covers that aspect in great detail.
In Sept 2008 I predicted the labor market had undergone changes that would structurally change unemployment levels to a significant degree. It is nice to see articles start to adress these problems although they do miss most of the structural issues. The biggest issues really suround corprate efficiency, productivity gains,Service sector needs, and most of all consumer income levels. On another note people talk about the need to increase consumer spending to overcome some of the recession. What many do not realize is consumer spending as a percent of net worth and income has picked back up. The only exception oddly is among the upper middle class and upper class. their net worth has gone up almost 10% but not their spending. There is a significant cultural difference between the underclasses and the upper classes. Perhaps the biggest is the trait of delayed gratification. The underclasses are still living mainly paycheck to paycheck... Overall their percentage of spending has changed much less then believed... only their income has changed to permanently lower levels. This overall trend creates structural changes in consumer spending. When "good times come back" cyclically the rich may increase spending a bit but the general public simply will not stucturally be able to. We are entering a new age with new paradigms.
Now companies when they do want to hire someone they prefer to find people who will fit into their system and can be trained or molded to meet the companies needs. Of course it helps keep costs down by doing this and that is the #1 objective in business today.
2 things about citing sources. 1) In short interview (remember this is a radio piece) it would drag the converstaion. 2)All unemployment is both and if you need proof think about all the construction jobs that will not becoming back in Nevada and Arizona for a perfect example.
When Krugman argues that our current unemployment is cyclical, not structural, he backs up his argument with facts. And he has a track record of being correct. I didn't hear Chris Farrell offer any reasons WHY he thinks there is structural unemployment, so he's less than convincing.
You should address this in more depth. If the unemployment were structural, what would we be seeing other than high unemployment? What would we see if it were cyclical? Maybe Krugman would come on the show to explain this.
