South By North Strategies, Ltd.

Deconstructing Structural Unemployment

John Schmitt and Kris Warner of the Center for Economic and Policy Research deconstruct the debate over whether the current high level of unemployment is the result of a “structural” mismatch between worker characteristics and employer needs.

Structural unemployment refers to unemployment that reflects supply constraints in the economy: workers whose skills or geographic location don’t match with employers’ desires. Structural unemployment differs from cyclical unemployment, which is associated with fluctuations in aggregate demand related to swings in the business cycle.
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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.
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We find little support for either of two arguments that suggest that structural unemployment has been on the rise.

Following a discussion of an analysis of data from the Census Bureau’s Displace Workers Survey (DWS), the authors conclude the following:

The DWS data suggest that the bursting of the housing bubble – the central cause of the economic downturn and the ensuing financial crisis – has not generated any noticeable increase in “structural unemployment.”
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Construction workers have indeed suffered disproportionately in the downturn, but they have also been at least as successful in coping with the hostile labor market of recent years as workers displaced from other sectors. Construction workers’ skills are at least as well matched to the available jobs as workers displaced elsewhere in the economy.
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The downturn in the housing market also appears to have slightly lowered the geographical mobility of displaced workers, but the economic effects are small, raising the pool of the unemployed by only a few percent (and the unemployment rate, by a much smaller amount).

Manufacturing In the South Atlantic: March

From the Federal Reserve Bank of Richmond’s latest survey of manufacturing activity in the South Atlantic (District of Columbia, Maryland, North Carolina, South Carolina, Virginia and West Virginia):

Manufacturing activity in the central Atlantic region expanded for the sixth straight month, according to the Richmond Fed’s latest survey. Looking at the main components of activity, shipments and new orders grew more slowly, while employment growth held steady. Other indicators varied slightly but suggested continued solid activity. District contacts reported that backlogs grew at a slightly slower pace and that increases in capacity utilization and delivery times eased somewhat, while inventories grew at a somewhat higher rate.
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Looking forward, manufacturers’ optimism remained in place in March. Survey contacts at an increasing number of firms looked for solid growth in shipments, new orders, backlog of orders, capacity utilization, and capital expenditures in the next six months.

 

Around The Dial – 3/28/11

Economic policy reports, blog postings, and media stories of interest:

• Random Samplings explains 2010 Census findings on race and ethnicity.
• Naked Capitalism looks at GE’s tax bill, or lack thereof.
• TaxVox consider how to finance long-term care.
• The New Republic notes the “anti-stimulus.”

SBN In The News: March 2011

• Asheville Citizen-Times: “Asheville-area job market starting to rebound”
• The News & Observer: “Jobs grow, but pace is glacial”
• The Winston-Salem Journal: “Triad jobless rate rises to 10.7 percent”
• Richmond County Daily Journal: “Unemployment up from 2010 ending”
• Viewpoints with Lockwood Phillips: “Radio interview on local economic conditions”
• The Winston-Salem Journal: “Jobless rate reaches lowest level in two years”
• The News & Observer: “N.C. joblessness dips, barely”
• The Charlotte Observer: “N.C. joblessness dips, barely”

Headed The Wrong Way

From Bob Herbert’s last op-ed column for The New York Times …

The U.S. has not just misplaced its priorities. When the most powerful country ever to inhabit the earth finds it so easy to plunge into the horror of warfare but almost impossible to find adequate work for its people or to properly educate its young, it has lost its way entirely.
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Nearly 14 million Americans are jobless and the outlook for many of them is grim. Since there is just one job available for every five individuals looking for work, four of the five are out of luck. Instead of a land of opportunity, the U.S. is increasingly becoming a place of limited expectations. A college professor in Washington told me this week that graduates from his program were finding jobs, but they were not making very much money, certainly not enough to think about raising a family.
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There is plenty of economic activity in the U.S., and plenty of wealth. But like greedy children, the folks at the top are seizing virtually all the marbles. Income and wealth inequality in the U.S. have reached stages that would make the third world blush. As the Economic Policy Institute has reported, the richest 10 percent of Americans received an unconscionable 100 percent of the average income growth in the years 2000 to 2007, the most recent extended period of economic expansion.