Friday, April 5, 2013

Unemployment -- Cyclical or Structural

Unemployment numbers are out today and the news is not good.  Why? the unemployment trend seems to indicate that structural unemployment is a bigger challenge than cyclical unemployment. 
The difference between structural and cyclical is not hard to understand.
A report on NPR yesterday explained the difference in plain language.
We want it to be cyclical, that means it's simply a byproduct of the business cycle; the economy went into recession, it's growing very slowly but growing. And when it reaches normal, whatever that is, we get unemployment way down. You know, somewhere maybe south of 5 percent. 
If it's structural, though, that means the economy has fundamentally changed; that there is a complete mismatch between the kinds of jobs people are trained to do and the kinds of jobs employers want to hire them for. So if this is a structural crisis that means millions of Americans are likely to be unemployed or underemployed for many, many, many years to come.
Other stories going back to Monday indicate that today's jobs report is a confirmation of suspicions, neither shocking nor even surprising.
Links, you say?
Here ya go...

Larry Summers: Economic downturn will leave 'permanent scar'
I think the proponderant probabilities are more favorable than would have been the case a year ago. There's a conventional wisdom that you can have a downturn and the downturn will last, and then the downturn will be reversed, and then you'll be back where you started from. What we've come to understand better is that when the economy goes down there is less capital investment, some people who lose their jobs go on disability and never come back to working, some young people who come out of school never get on the track that they hope to and that stays with them. And so the temporary blemish of a downturn leaves a permanent scar. And in that sense, cyclical problems can harden into being structural problems. My fear is that there is an element of that in the current American situation -- that's why accelerating the recovery in any way that we can is so important.

The Labor Market Is in Worse Shape Than You Think
Thirty consecutive months of job growth has helped the U.S. economy recover from its darkest days in 2009, but the national unemployment rate still remains high at 7.7%. According to Robin Harding, U.S. economics editor at the Financial Times, the U.S. has shed nearly two million clerical jobs since 2007 while creating just 387,000 managerial positions, setting up a polarization in the labor market. 
“We’re seeing this ongoing structural change as well as a cyclical change in the economy, Harding says. “Someone finding a job in this economy may not be finding the kind of job they’d like to.” 
Harding says the shift to low-wage jobs from “good middle-class” jobs such as construction, book keeping, data entry and bank telling, has led to growing income inequality. These positions have been replaced by modern IT systems that companies are using to cut costs and increase their bottom lines.

US has lost 2m clerical jobs since 2007
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The US has gained 387,000 managers and lost almost 2m clerical jobs since 2007, as new technologies replace office workers and plunge the American middle class deeper into crisis.
Data from the Bureau of Labour Statistics divide the US workforce into 821 jobs from dishwasher to librarian. They show rapid structural shifts – on top of a cyclical unemployment rate of 7.7 per cent – that may increase income inequality.
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