Thursday, August 12, 2010

Structural Unemployment

In the US, the end of the recession has not brought about a fall in unemployment. In fact July figures showed a rise in unemployment. The unemployment rate is currently 9.5% (BLS)

In a strange twist, there has been a rise in job vacancies not matched by a corresponding fall in unemployment (Federal Reserve of Atlanta). This suggests there could be a growing mismatch of skills / demand for labour leading to cyclical unemployment being replaced by structural unemployment.
  • Cyclical unemployment is the unemployment that increases during a recession. Firms produce less so lay off workers. As you might expect unemployment has risen in all the major economies affected by the recession.
  • Structural unemployment occurs when there are vacancies but people don't have the right skills / motivation to take the job. (this includes occupational and geographical immobilities)
A recession could contribute towards a rise in structural unemployment
  1. Recessions tend to hit certain sectors of the economy more. For example, In this recession, finance has been hard hit requiring a shift in labour to other sectors. This could require a significant geographical and occupational change.
  2. In Recessions, there is often a fall in the participation rate. e.g. people become demoralised from the labour market and take early retirement or move onto non-unemployment benefits. This is certainly an issue in UK with 5 million people on non-unemployment benefits.
Lagging Factor. It may be too early to make assessments on a change in structural unemployment. Unemployment is often a lagging factor. e.g. firms try to avoid making redundancies during a recession, but, then are reluctant to take workers on in the recovery.

Long Term Trends There are long term trends in a global economy towards a mixture of high skilled professions (e.g. health and legal) and very low skilled service sector jobs (e.g. cleaning). There has been a steady decline in manufacturing jobs with mid-level skills. (See: Mit.edu). These long term trends do put upward pressure on structural unemployment.

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1 comment:

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Policymakers keep making this mistake. Things look tenuous — and there are plenty of worrisome signs right now — but then they make excuses, adopt rosy scenarios, and find other ways to wait until they actually see the bad outcome before moving to action. It’s like covering yourself up after the blow. Or saying you’ll close the barn door if you see the horses running toward it. Who’ll get there first? There’s plenty to suggest that we need to insure against the chance that things will get much worse, or simply stagnate. In any case, we need to try to offset the problems we already have. But yet, there’s no action. It’s frustrating to see conditions so bad, with signs they could get worse, and have no sense of urgency from policymakers.