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Structural Unemployment

When is unemployment more than just the lack of a job?  The term “Structural Unemployment” has started to gain prominence in the news for the first time since the 1980s, and it means a lot more than the lack of work.  It refers to a lack of appropriate skills among many of the labor pool that makes many people difficult or impossible to employ.  While this is a serious problem, it could actually be good news – there is a new economy rising out of the ashes of the old one.

The difference between good economic news and bad is, as always, written in our ability to deal with the situation at hand.

Long-time readers will know that since the latest phase of this “Managed Depression” started in 2007 I have been writing on restructuring our economy.  The short version is that economic recovery is not an event we simply have to wait for, but a long process that has to be crafted. It takes public and private sectors working together.  Key issues are always flexibility of labor markets, meaning that people can move to new jobs, and generational transfer as new workers replace those who are retiring.

There is some significant job creation taking place, but employers are slow to add workers largely because they are having trouble finding people with the right skills to come in and perform from day one.  The alternative, on the job training, takes time and resources that they are still unwilling to invest.

Structural Unemployment is more of a social problem than a purely economic problem because it means that entire classes of people are being left on the sidelines.  As Mohamed El-Erian, CEO of PIMCO (the world’s largest bond trader) writes:

At its root, America’s jobs crisis is the result of many years of under-investment in human resources and the social sectors. The education system has lagged the progress made in other countries. Job retraining initiatives have been woefully inadequate. Labor mobility has been declining. And insufficient attention has been devoted to maintaining an adequate social safety net.

This is why political turmoil and government inaction has become critical at this phase of our economic development.  Capital shortages are not limiting economic growth, meaning that the Federal Reserve and big tax cuts are not likely to produce significant job growth.  The old Keynesian stimulus that works so well in an ordinary recession has proven terribly ineffective and will continue to be. What matters now is investment in the one truly great resource of this or any other nation – its people.

And that’s a lot harder than just printing a lot of money.  As the Washington Post put it:

In any case, the problem for the private sector is not a lack of funds: Corporations already have about $2 trillion in cash available, well above normal levels. The problem is a lack of attractive business opportunities.

What is holding us back right now is a lack of confidence and dedication to the real problem at hand, as noted by El-Erian. Just as the economy can’t rely on the same old mechanisms that propelled it in the 1990s, our politics has to restructure and change to match it.  That is proving much harder to do.

Structural Unemployment will likely become the new media buzzword for the economy for some time.  This is a good thing because it means that the focus is coming to where it should have been all along – people and what they have to offer the world.  What we make of this is what true restructuring and recovery is all about.

22 thoughts on “Structural Unemployment

  1. So the difference between ‘structural unemployment’ and garden variety unemployment is the lack of skills? That sounds like we need a lot more retraining programs and more social services, not less. I don’t hear anyone calling for that.

  2. 1/2 of me doesn’t belive you (sorry). Channeling Jim Thompson I’m gonna be a one note johnny (just like fox news). Here in pacific city we don’t belive in govmint handouts. We scorn all that reeks of socialism. We hold to the American way of life, the good old laws of supply and demand. That is the landlords supply what they care to and demand what they feel like. If you cannot pay, you can sleep in the streets where you will be arrested. Then the machinery of the law goes into swift and merciless action. 6 months on the road gang why its good for the farmers and business.

  3. So the argument is that so many people are unemployed because they aren’t equipped to be productive?

    Corporations and the rich are rolling in money (true) ” …. but employers are slow to add workers largely because they are having trouble finding people with the right skills to come in and perform from day one. The alternative, on the job training, takes time and resources that they are still unwilling to invest.”

    Somehow, I don’t think so.

    Dave Johnson’s “Actually, “the Rich” Don’t “Create Jobs,” We Do” piece in Truthout recently made more sense:

    “If you ask around you will find that every business tries to employ the right number of people to meet the demand. Any business owner or manager will tell you that they hire based on need, not on how much they have in the bank. (Read more here, in last year’s Businesses Do Not Create Jobs.)”

    “Lots of regular people having money to spend is what creates jobs and businesses. That is the basic idea of demand-side economics and it works. In a consumer-driven economy designed to serve people, regular people with money in their pockets is what keeps everything going. And the equal opportunity of democracy with its reinvestment in infrastructure and education and the other fruits of democracy is fundamental to keeping a demand-side economy functioning.”

    Seems to me that people are deriving their economics from their politics, rather than vice-versa. This is usual in the history I’ve read, but we’ve reached a point where the disconnect between reality and what people are thinking is so extreme that meaningful course corrections and counter-cyclical public spending have become very difficult.

  4. Anna, yes, I think someone should be calling for that. Which leads directly to:

    Dan, I see your point completely. There’s no appetite for a big new program. I’ve been calling for smaller programs such as a focus on reducing the overhead per employee – a natural public / private partnership that benefits business. To me, that’s a minimum, and the fact that we haven’t gotten that far is very disturbing. Beyond that, a major job training program may be a bit much to swallow, but the more information about developing jobs can help people make decisions that guide their own training – again, a real minimum. It may be too much to ask as well.

    But – and this is very important – I don’t see the private economy restructuring in anything like a reasonable time without this kind of restructuring in government and politics. People have to start demanding much more and much better from our politics.

    This is what has propelled my writing on the topic for the last 4 years.

  5. Alan, we posted just past each other, so I didn’t see your comment when I responded. It looks like we said about the same thing at the same time – but from different perspectives.

    I do not disagree that what we have is a direct result of a generation-or-so long lack of investment in infrastructure, people, and all the things that government needs to invest in. I’ve written on that many times before. But what can we do to go forward? Man, it’s hard to know. But the disconnect between our politics and reality is definitely the biggest problem we face – because until that’s corrected I don’t see us tackling anything real.

  6. If the CEO of a bond trading firm is calling for more investment in people then maybe things are changing. God I hope so.

    Once again I think you hit a trend in news before it took off – or at least I hope you did. I agree more with Alan that things are rotten at the core but it would be great to have the two of you debate. Both of you need to run for office!

  7. Erik I am not sure you get it in the way that I do (with neither being dominant) and that’s the pleasure of writing thoughts with words. I am going to steal some ideas here from Kafka. The ruling ideology is always the ideology of the ruling class (I think we fairly agree here). The learning of the rules (ideology) is done by the gradual inculcation of values. The ideas we have are built there by set institutions. Most (or some ) think there is no other way. “The fruits of his labor were transformed into money only…they became used to it….the money was received with thanks and given with pleasure but that special warmth of (old, local, handmade) goods was missing.” He had become a bug when he woke up in the morning he thought not of what he should do today but only that he was late for work.

  8. I am adding more here and excuse me for not knowing how to produce a paragraph on the computer. From “Born in the country” one of the very few American historical textbooks that details a peasants life and point of view. “The village was the institution. It was also a self directive economic entity as well… it had a tradition of reciprocity…all were responsible for maintenance on facilities and labor in the fields. None were unemployed. I repeat none were unemployed. There was labor for all from milling grain, to tending fields to securing fences to watching livestock. They used the forest for wood and game and the ponds for fish.” This was how many lived for a long time. The Black Death undid some of the old structures, but the rise of capital undid many more. My dad lived a life somewhat similar to this in his childhood, and mennonites, and hutterites lived nearby.

  9. Dan, sorry for the slow response. Been very busy!

    I do think that most people want to contribute something to the world. Your example of a small community would have even more pressure on everyone to do their part. It also probably helps a lot when it is pretty obvious what work needs to be done because it’s right in front of you.

    Thinking about what’s different in the modern world, I came up with two things that are very different from what you describe – and makes me think that this is a very useful way of looking at things. One is anonymity – where people can slip through the cracks and feel isolated (which is sort of what I think Kafka was getting at). The other is a high degree of specialization, where it’s hard to know just what you have to contribute to the world (something I struggle with quite a lot, since my chosen specialty of chemical engineering is not in high demand right now).

    I think this is a very good way to look at things. As I said, I do think nearly every one wants to contribute something to the world – which I guess makes me a Marxist at heart. You’ve given me a lot to think about, so thank you very much.

  10. the whole world has job crisis. soon there will be no need to humans, just robots will do all the work… I am serious.

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  14. This is very helpful, thank you. I’ve heard the term used and never knew what it was supposed to mean.

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