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.