Tuesday, September 28, 2010

Structural Unemployment vs. Structural Underemployment

A few days ago Paul Krugman made a good point on his blog, and more recently in his column, that even if you believe that structural changes have arisen that will affect the employment market, there's no basis for believing "that structural unemployment is our main problem right now".
Is it possible that there has been some rise in structural unemployment that’s swamped by a much larger rise in cyclical unemployment? Yes, conceivably. And let’s talk about that when unemployment gets below, say, 7 percent — which at current rates of progress will happen, well, never.
He draws on some depression-era analysis to support his position,
I’ve been looking at what self-proclaimed experts were saying about unemployment during the Great Depression; it was almost identical to what Very Serious People are saying now. Unemployment cannot be brought down rapidly, declared one 1935 analysis, because the work force is “unadaptable and untrained. It cannot respond to the opportunities which industry may offer.” A few years later, a large defense buildup finally provided a fiscal stimulus adequate to the economy’s needs — and suddenly industry was eager to employ those “unadaptable and untrained” workers.
In a big picture sense, I believe Krugman is correct. The economy will recover and unemployment will drop to a more acceptable level. The government may be able to accelerate that process through additional stimulus spending. But that said, let's not disregard the differences in the job market between the U.S. as it entered WWII and the post-war boom years and the job market of today.

Kruguman refers to a couple of studies that suggest that the collapse of the housing market did not create structural unemployment, despite the loss of jobs in the construction trades representing 25% of private sector job losses. That is, construction workers for the most part were able to find work in other fields or have left the country. But the picture is more complicated than "employed vs. unemployed". Are workers who have been displaced from relatively well-paid jobs able to find similarly paid employment? For those who have found work, the trend appears to be toward significantly lower pay and fewer benefits. Atrios has pointed out that many employers have unrealistic expectations, wanting fully-trained, experienced workers to apply in droves for jobs offering rather pathetic compensation. But let's be honest about this - the era of a blue collar middle class appears to be ending. Whenever possible, manufacturers will relocate to the nation with the lowest cost of production - and that's not ours.

Even when times are relatively good, the issue of retraining displaced older workers is problematic. The idea of transitioning from a job in which you had a decent salary to one in which you're an entry level worker is difficult enough. Add to that the fact that younger workers, new or recent entrants to the job market, may have superior skills, are on the whole healthier, and may be perceived as more flexible and less likely to resist or question management, and... it's no surprise that retraining produces weak results. Add to that the fact that retraining is often hit-or-miss - if you project future need based on present need you can quickly create a glut of workers, and if you try to guess the future needs of the job market you'll probably guess wrong.

So no, let's not throw up our hands and pretend that nothing can be done about the unemployment rate. Let's hold accountable those who prefer to do nothing, whether it's because of institutional bias, because developing solutions is hard, or because they see personal or political benefit in perpetuating the economic crisis. But at the same time, let's take a hard look at the structural issues that are eroding the middle class, and appear to be creating a population of older workers who are chronically unemployed or underemployed. To the extent that structural problems exist, Krugman's point still holds - we shouldn't shrug and say, "It's structural, so we can't change it." We should instead take a serious look at how we might create new opportunities.

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