The term “structural employment” means high unemployment that persists through the business cycle, rather than being high only during economic downturns, and so is likely to reflect features of the structure of the economy. Structural economy was a characteristic of the post-World War I British economy. Keynes explained it as the consequence of an overvalued pound, which by making British exports very expensive reduced exports and hence employment in production for export, and by making imports cheap reduced the consumption of domestic products and hence the producers’ demand for workers. Demand for labor was so weak that the going wage for many workers was lower than their unemployment benefits. There were also impediments to relocating from geographical areas of high to low unemployment within England; Becker points out that the depression in our housing market complicates relocation to low-unemployment areas in this country.
Unemployment in the United States rose rapidly beginning in the fall of 2008, and it remains abnormally high three years later. Since the economy is still in the doldrums, it is hard to tell whether the abnormal unemployment rate is structural—in which event it may be the “new normal”—or whether it is cyclical. Another complicating factor, emphasized by Becker, is the extension of unemployment benefits to almost two years. Unemployed persons often wait until their benefits are about to expire before they undertake a serious search for a new job, though my guess is that the longer the benefits period, the less the delay in job search; the worker worries about the erosion of his job skills and becomes financially pressed because unemployment benefits are lower than wages.
Although it is premature to say that we have a problem of structural unemployment, it may also be premature to say that we do not. The financial crash and ensuing global economic crisis was a business-cycle phenomenon, but a crisis of such magnitude can bring about or be correlated with or highlight a structural change in the economy. The most inclusive measure of the U.S. unemployment rate—what is called U-6 and includes discouraged and involuntarily underemployed workers as well as unemployed ones looking for jobs (unemployment in the narrow sense)—has risen from a shade above 7 percent in 2000 to a shade above 16 percent at present. True, it fell sharply between 2004 and 2007, but those were years in which the economy was artificially pumped up by massive cheap borrowing interacting with deep tax cuts. Without the tax cuts and the cheap borrowing, and without a recession (more realistically, a depression), there might have been steadily increasing rather than irregularly increasing unemployment over the last eleven years.
The economic crisis is related to, and may have accelerated, trends that could create structural unemployment. One trend is increased competitiveness of foreign producers, resulting in Americans’ substitution of cheap imports for domestic products (and hence domestic production and therefore domestic employment), and in a reduction in exports. This is the same combination that caused or at least contributed to the structural unemployment in the U.K. that I mentioned. The severe ongoing economic crisis in Europe has also reduced demand for U.S. exports. And it is difficult for the U.S. to devalue its way to increased exports and reduced imports because of the role of the U.S. dollar as the principal international reserve currency.
A related trend, also adverse to U.S. employment, is the decline in educational performance of American students relative to students in other countries. Furthermore, quite apart from the minimum wage and lengthy and generous unemployment benefits, American workers are expensive to employers because of workers’ legal rights and the extensive regulation of workplace safety. The costliness of these rights and regulations leads American companies to relocate as much of their production abroad as they can and accelerates the substitution of capital for labor inputs into production—and much of that capital equipment is produced with few workers.
Persistent unemployment can feed on itself, because the unemployed have lower incomes and so spend less on consumption (and consumption drives production and therefore employment), and because the long-term unemployed lose skills. And if the pattern of employment shifts, many workers discover that they have not been trained for the types of work in which there are jobs.
If all public benefits for the poor were abolished, along with unions, unemployment benefits, the minimum wage, and regulations of workplace conditions, the going wage would plummet and unemployment would fall. But as such draconian measures are not in the cards, we have to worry about the possibility of structural employment and think of civilized ways of heading it off.