Brad DeLong Explains How Cylical Unemployment and Structural Unemployment Differ

Disclaimer: I got this one wrong! Really wrong! My bad.

DeLong does not claim that our economy is experiencing structural unemployment. In fact, he argues the opposite, a lot. I made this a while back, and just messed up. I know better. Sorry.

DeLong argues that there’s no way that unemployment can be structural, because unemployment exploded after the financial collapse. It’s because of a lack of demand for goods and services and not an inadequate supply of good workers that has caused our unemployment situation.

But I’m going to keep up my mistake, for transparency.

I read a great blog post today: Identifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers

Basically, if the economy was healthy but a part of the economy was suffering from decreasing demand and high unemployment, the economy would restructure to sectors where there are higher demands in goods and services, and jobs would relocate too. This is cyclical unemployment. However what we are seeing is Structural Unemployment, where the economy isn’t healthy and no sector has shown a shift to take in the unemployed in down sectors. Because well, almost every sector of our economy is down, and no sector is increasing even to adult population growth.

Well, over the past three years…

  • employment in logging and mining has risen by 11 thousand
  • employment in construction has fallen by 2.1 million
  • employment in manufacturing has shrunk by 2.4 million
  • employment in wholesale trade has fallen by 437 thousand
  • employment in retail trade has fallen by 912 thousand
  • employment in transportation and warehousing is down by 333 thousand
  • employment in publishing, except internet is down by 147 thousand
  • employment in motion picture and sound recording is down by 34 thousand
  • employment in broadcasting, except internet is down by 41 thousand
  • employment in telecommunications is down by 54 thousand
  • employment in financial activities is down by 921 thousand
  • employment in professional and business services is down by 1.3 million
  • employment in educational services is up by 197 thousand
  • employment in health care is up by 789 thousand
  • employment in leisure and hospitality is down by 467 thousand
  • employment in other serivces is down by 32 thousand
  • employment by the federal government is down by 330 thousand
  • employment by state and local governments is down by 127 thousand.

All this in the decline from 137.83 million people employed in July 2007 to 129.95 million people employed in July 2010–a 7.88 million decline in employment during a period in which the adult population has grown by 6 million.

I see employment growth in (a) internet, (b) health care, and (c) logging and mining. I see employment declines everywhere else.

The economy isn’t mismatched, it seems to be structurally unable to support traditionally full employment rates, where an unemployment rate is between 4-5%.

Happy Thursday everybody!

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2 Responses to Brad DeLong Explains How Cylical Unemployment and Structural Unemployment Differ

  1. C to the Dizzle says:

    A recent Economist article (http://economist.com/node/16888999) lights upon a similar argument, namely that the scope and size of the recession has dulled the efficiency of the country’s labor market and as a result actually increased the natural unemployment rate from 4.5% to something perhaps as high as 6%. The housing bust has saddled many with unsellable properties, the “underwater” mortages found throughout the country, but especially in areas of high development prior to 2008 such as Las Vegas, Phoenix, and parts of Florida and California among others. Owners of such mortages can’t afford to move and in many cases their localities are among those with the highest unemployment rates. A nasty confluence of events.

    Historically, recessions/depressions are severest for those with the lowest skill sets and this was no different. Such individuals are the first to be let go and the last to be hired, if in fact they are eventually able to again find employment. Sustained stretches of unemployment only further decrease one’s odds of finding a job. Sadly, what may mark this “Great Recession” as somewhat unique is the likeliehood that many of the jobs lost over the past couple years are permanently gone. Manufacturing, the hardest hit sector, had been locating factories and jobs beyond American borders for years and the downturn has only served to quicken the trend. What’s more the industries which are shown above to be growing (internet and healthcare) require skills and knowledge that aredifficult to come by, particularly for an individual struggling to keep a roof over his/her head.

    The author notes that the government could be doing more to ease foreclosures and strengthen training programs for the unemployed. I agree with both points and would point to the success of Recovery funds used to retrain workers in clean energy and residential retrofitting. Both state and the Federal government would be well advised to consider broader retraining programs. Compared to the drain on the treasury caused by the long term unemployed through unemployment insurance, food programs, and healthcare costs a a national program to train workers in relevant fields could ultimatley be a cost effective venture. Further, a more obvious type of “direct investment in the American people” is hard to find.

    On one point I do disagree with the author of the article. He/she argues that unemployment benefits incentivize the unemployed to take longer to find work. While this may be superficially true unemployment benefits also making finding work easier. For instance, an unemployed mother can’t exactly bring her children to job interviews. Unemployment benefits allow for a babysitter to be hired. Nevermind that they will also be able to eat.

    Members of GOP have in recent months become fond of the “benefits as incentives to stay jobless” arguement. As was ealier mentioned many of the unfortunates who lost their jobs were in building or manufacturing positions and its unlikely they had tremendous savings to fall back on. Personally, I can hardly imagine a recently unemployed worker thinking “I’m going to pass on this offer because ol’ Uncle Sam is sending me $300 per month, the sucka. This is easy street!” Such paltry funds hardly make one’s prospects golden, similar to the prospects of a recently impeached governor who also had a fondness for things golden. But I digress.

    The unemployment rate has remained sadly and stubbornly high and the administration will be able to do little to change it before the Novemember elections. However, in it’s aftermath and regardless of the outcome they would be well advised to consider a far more expansive and dynamic retraining plan than has yet been put forth.

  2. Pingback: I Got One Really Wrong and Want to Go Back and Say So « DC Skeptics

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