Has Structural Unemployment Become Important in the United States? Becker

The persistently high unemployment rate in the United States during the Great Recession has led to claims that much of American unemployment is “structural”. According to this view, the demand for workers by companies is insufficient to employ all unemployed workers because there is a mismatch between the skills possessed by many American workers and the skills required by companies. The structural advocates believe the skills demanded by companies tend to exceed or otherwise be different from the skills possessed by many unemployed workers. As a result, so goes the argument, these unemployed workers cannot find jobs and remain unemployed for a long time.

 

Although I will argue that not much of American unemployment is “structural” or due to such a mismatch, the structural theory is on the surface supported by the large number of long-term unemployed, the most disturbing feature of American unemployment during the Great Recession. Structural advocates claim that unemployed individuals with skills that are only weakly demanded face prospects of remaining unemployed for a long time. Since the unemployment rate rose above 9% in 2009, the fraction of the unemployed who have been out of work for over 6 months has grown to over 40%. Prior to the start of the recession in 2008, long-term unemployed were a little under 20% of total unemployment. Although long-term unemployment usually rises during prolonged recessions, the magnitude of the rise during the current recession is unusual for the United States.

 

While long-term unemployment in the American labor market jumped up during this recession to unusual heights, there is no evidence of any large mismatch in US labor markets prior to the recession. In 2007, for example, the total unemployment rate was still under 5%, and less than 20% of the unemployed were out of work for six months or more. It is not credible to believe that the underlying structure of labor demand in the US has shifted so much in the few years since the recession began that almost 4% of workers (0.4x9%) will not have employable skills once the American economy gets out of its doldrums, and begins to grow at its “normal” long-term rate of about 2% per capita per year.

 

The JOLTS monthly data prepared by the federal government on new hires and job vacancies in the United States show over 3 million job vacancies in recent months, and over 2 million openings even during months at the height of the recession. Given this large number of job openings, I conclude that the millions of individuals who have been out of work for 6 months or more could find jobs if they are willing to be flexible on wages and other conditions of employment. Put a little differently, millions of job openings each month in a labor market with considerable flexibility in wages, which describes the American labor market, makes it really hard to argue that many of the long-term unemployed cannot find jobs.

 

How then can we explain the high and persistent levels of long-term unemployment during this recession? One clearly important factor is the extension in July of 2010 of unemployment insurance to cover workers who have been out of work for 99 weeks instead of having their payments end after 6 months of unemployment. Studies have shown that many unemployed find jobs just about when their unemployment payments expire, after 6 months of collecting benefits under the old system. It does not require any complicated economic analysis to conclude that the extension of unemployment payments to 99 weeks will encourage many individuals to remain unemployed after 6 months of unemployment, although they would have found jobs under the old rules. They will turn down jobs that may not be as good as those they had before becoming unemployed in order to continue to collect unemployment benefits. For that reason I opposed the extension to 99 weeks in my post on 7/25/2010 (“Should Unemployment Compensation be Extended?”).

 

Long-term unemployment may also partly be the result of uneven employment opportunities and uneven prospects for housing prices in different states and regions of the US. States like California, Nevada, and Florida that had major construction, jobs, and housing booms in the years before the onset of the recession suffered the largest hits to employment and to housing prices. Unemployed workers in such states may be reluctant to move to states where more jobs are available at good wages since they may be involved in foreclosure litigation and other issues related to the depressed housing market. They may also turn down jobs that pay much less then the unusually good wages they had during the boom times to continue to collect unemployment benefits for up to 2 years.

 

Other factors are also involved in the sharp rise in the number of workers unemployed for over 6 months.  Yet overall they do not justify the conclusion that many unemployed individuals are unable to find jobs because the American economy has too little demand for their set of skills.

Comments

[Jack]

".............has led to claims that much of American unemployment is “structural”. According to this view, the demand for workers by companies is insufficient to employ all unemployed workers because there is a mismatch between the skills possessed by many American workers and the skills required by companies."

Worse than that, as we see there are no shortages of products using labor, so a strong indication that 85% of the work force can (with nearly infinite help from Asia and others) produce all that is DEMANDED. (Demand being needs and wants coupled with the funds to enter the market)

"While long-term unemployment in the American labor market jumped up during this recession to unusual heights, there is no evidence of any large mismatch in US labor markets prior to the recession. In 2007, for example, the total unemployment rate was still under 5%, and less than 20% of the unemployed were out of work for six months or more. It is not credible to believe that the underlying structure of labor demand in the US has shifted so much in the few years since the recession began that almost 4% of workers (0.4x9%) will not have employable skills once the American economy gets out of its doldrums, and begins to grow at its “normal” long-term rate of about 2% per capita per year."

........ the whole housing sector collapsed from those installing turf to those on WS feeding on the false boom. It is not to be "back" as once 5 million or so homes in inventory (or about to be in inventory) are mopped up, new home starts will only return to replacement plus population growth numbers such as 700,000 -- one third or less the numbers during the bubble phase.

The "puzzling" nature of job openings not being filled? Look it's difficult and take time and perhaps more inputs to regroove an unemployed sheetrock crew to do ANYthing else. And to take the Taco Bell openings? To what end? the family is still going to starve. You do understand they were barely making ends meet during the "boom" cycle of stagnant and declining wages replete with fewer benefits.

" Yet overall they do not justify the conclusion that many unemployed individuals are unable to find jobs because the American economy has too little demand for their set of skills."

.......... Oh? Well factor in some real world frictions such as HALF of homeowners being at break-even or underwater, meaning that should they seek or be offered a job elsewhere it would A. take a long time to sell their home B. they'd have to bring dollars to closing that the long term unemployed are unlikely to have.

Lastly, while opposing unemployment extensions at the ivory tower level, WHAT do you propose for those not finding jobs? Starving in the streets? Flicking in more homes to add to REO inventory? Let the car go back to the bank or leasing company? Got any advice for the pizza guy hanging on down the street? or for the owner of the strip mall of increasing vacancies? Their bankers?

[NEH]

"Has Structural Unemployment become important in the United States"? I do believe the question itself is a bit premature. The U.S. and the rest of the World is still in the depths of a severe long term Depression/Recession (the economic jury is still out on this). Given the fact that hiring by business or industry will not occur in the depths of a Depression/Recession (even if it is only perceived as such) lends itself to being the primary cause of an inordinately high unemployment rate.

Before we raise the question of "Structural Unemployment" the economy must first come out of the current Depression/Recession and be robust for at least a year or two. After that, and if the unemployment rate continues at a higher than normal rate, the issue of "Structural Unemployment" may become a factor.

As for the length and time one is unemployed, this is but an effect of the depth and length of the current Depression/Recession. It really has nothing to do with the "Desire to Work", experience or skill sets one possess. There are plenty who desire to work and have skill sets and experience, but still cannot find full time paying jobs with benefits.

[Karen]

go to gfaonline.info

they're hiring

[Jerry]

I believe that in this soft economy with a highly competitive job market, job seekers need to be more flexible. Particularly older workers need to re-train themselves and more or less re-invent themselves. They have to be willing to do things they have never thought of before. For the long term unemployed I would suggest going back to school. That looks much better on your resume than sitting around collecting an unemployment check. For a limited time, the Relationship Capital Co. is offering free job search training for your unemployed readers at: http://RelationshipCapital.CO/JobNetworkingPrimer/?utm_source=bl&utm_medium=sm&utm_content=d

[Fred]

Thanks Mr Becker for sharing the information.

[NEH]

Jerry, Job flexibilty - "Time to make the donuts" or stop down at the station to pick up the cab for the next shift. Never mind the fact that most hold Bachelors, Masters or PhD's... Reeducation? Besides the wages don't even cover the bills...

Relationship Capital Co., just another head hunter looking for resumes for their files. Just like the thousands or tens of thousands of other Search Firms out in the Internet Black Hole...

If Business and Industry aren't hiring, there are no jobs. Simple as that... ;)

[moncler jackets on sale]

Your post is an excellent example,I keep on reading this attractive blog. Thanks!

[Jack]

NEH? Don't you think that's a bit more, beyond the ivory tower, truth than this forum can stand?

[Jack]

" After that, and if the unemployment rate continues at a higher than normal rate, the issue of "Structural Unemployment" may become a fact.."

I'd think econometric modeling could handle that one before wasting all the time. For example a "rebound" in housing means approaching the 700,000 start of replacement plus population growth --- that's less than a third of the starts of the peak years of the bubble for all from fence builders to the whole mortgage/bankster hierarchy. Half of those jobs are gone for the foreseeable future. Three million? w/o a big computer to aid my guess?

Even the President's fall back jobs plan comes to a theoretical two million jobs that the obstructionists aren't going to let him have.

Here, a recent article on a couple of the earlier "shovel ready" stimulus projects that were supposed to be finished in 18 months. There were three proposed wind projects to serve far flung military bases where bringing in diesel might cost more than $10/gallon. Good idea, seemingly good projects. But one went forward prior to a year long wind resource study. It turns out that the wind wasn't as steady as first predicted so they've a problem of the sporadic nature in a small (one plant) "grid" that is requiring some redo of interfaces etc.

The two other projects were delayed, one at Cape Newenham, the very windy cape at the corner of Alaska, being put off because at the site the winds were too turbulent. It's a very steep coast there and a short distance offshore the winds might have been fine. These may not be built at all.

I don't put these forth as "failures" but to point up "hurry" and "theory" can be problems.

But I stray. Surely, economists not being blind-sided by what the banksters perpetrated can go sector by sector and come up with a fair estimate of the jobs outlook. And just a surely after deriving that best guess we can do the same in regard to job creation efforts.

We hardly need perfection, if things look as though "natural rebound" will bring unemployment down to 5% so be it; do little or nothing. If on the other hand as is my strong belief we've a REAL problem of not requiring the entire workforce that I believe has been long masked by the stock market boom followed by the housing bubble boom we NEED to have a response.

Right now, as with our profs there is the "debate" as to whether to extend unemployment benefits beyond the 99 weeks. So then what? have 'em joining the protesters in the streets? And what happens to the small or for that matter any size businesses dependent on the limited spending allowed by unemployment income? They collapse or lay off too?

Suppose we ARE at a point where 90% or less of our workforce (plus Asia/India et al) are providing all that is demanded by a demand limited economy? Then what? All of the sci-fi stories pointed to a shorter work week, more leisure time and industries developing around increased leisure time coupled with the income to enjoy it. We have nothing like that in place or even in mind. Instead those desperate for any kind of job are to work longer hours for less pay and be appreciative for their opportunity.

Politically we're at risk of those chanting cut the budget being swept into power and either from believing their chant or attempting to live up to campaign promises that they'll have to do exactly that. In the short run can anyone see how cutting Fed/state and local budgets does anything but exacerbate the jobless problem and worsen the downward spiral?

When our buying of Chinese imports drops sharply will the "goody-boys" for budget cutting that brings us no closer to lowering the deficit keep them happy?

[Jack]

One more: Suppose in today's economic environment we were to err and Ha! if possible do what we once called "overheating the economy".

I think we saw that situation during the Clinton era. Economists seemed amazed that we could run with 4% unemployment and not begin to see wage inflation. Different world? One where any "overheating" would simply be exported to the nearly infinite labor "sink" of the world, as we opened our gates to more H1B-Visa employees and continued to outsource.

It's not enough to plead poverty and that we can't spur our way back to full employment via government spending. Instead we have to assess whether we are looking at a decade of 10-20% unemployment and if so FIND means of putting most of our people back to work.

Those can be public/private programs that ultimately pay us back, such as major energy projects that save us from paying the price for increasing amounts of imported oil.

Perhaps it's something we all pay. For example it was a LONG time ago that we adopted .23 as the gas tax to build and maintain our highways. At $3 and $4 gas a doubling of the gas tax would hardly show up but would bring billions to bear on our crumbling infrastructure problem and likely spur a bit of conserving what we now waste with every dollar saved from being exported to an oil kingdom being an investment in our own economy.

It seems our greatest enemy is lack of, courage, imagination and Congressional gridlock. Our problems have solutions and the sooner adopted the better.

[chi flat irons]

This Post Is Very Informative. I Like It Very Much.

[NEH]

Jack, Reality and fact are much like a "horse pill". Unpalatable at best or impossible to swallow. I always found that the "naivete" that exists in the "Ivory Tower" goes far in explaining the "Don't bother me with the facts, my mind is made up". Which also goes far in explaining Congress's problem and our inability to jump start the Economy... ;)

[Mike Hunter]

"Put a little differently, millions of job openings each month in a labor market with considerable flexibility in wages..."

In other words bend over and grab your ankles.

I graduated in 2009 with a major in Finance & Applied Economics, not exactly the same as someone who graduated with a degree in Art History. It still took me an entire year to find any employment at all! I was applying for any job I saw open that I might qualify for including jobs such as: Walmart greeter, night time hotel clerk, security guard, etc.

I now work as an entry level accountant, but; I'm paid a fraction of what my employer paid the previous person in this position, and I've had to take a 10% pay cut in the past year on top of that. I make just enough money each month to pay my bills.

So a "lucky" millennial in today’s economy can go to college for 4 years, get a degree with a major in a practical field, and then have the luxury of living paycheck to paycheck. Having your own house? Having decent medical insurance? Falling in love and starting a family? Forget it those are all pipedreams reserved for the baby boomers, and those in the upper echelons of the income distribution!

[Barbara Cruz]

If people wanted jobs they could find them and if they couldn't they would start a business. The problem is that people are lazy and dont want to take the time to think outside the box.

[Jack]

NEH Yup! And another problem with Congress is that DC has been virtually recession proof with relatively high wages widely distributed and little unemployment. The old saw about recession being when your neighbor loses his job and depression being when your's it gone tells the story of how academic 20% under and unemployment is for what's still the vast majority whose incomes and benefits continue as before.

So.........."Ho-hum..... back to Congress to play minor league "gotcha" and a fine game of gridlock while Rome burns.

Mike.. yep! You might like the cover article of this months's Atlantic "What Me Marry?"

Another economic disconnect. What is supposed to be happening is for the young to have good jobs so as to buy the homes boomers would like to downsize from and hit the beaches, and a batch of the homes built for a fictional "market" at a median price of $250,000 in a nation where median incomes support only a $170,000 median home price.

Ha! what IS happening in housing, and likely bad news for banksters sitting on a powder keg of soon to be bank owned empty homes, perhaps devoid of copper plumbing and all else that can be torn loose is "non-traditional" buyers. Driving around they all look like traditional Ozzie and Harriet family homes, but not long ago traditional families became less than 50% of the market with the other 50% being unmarried roomates, gays, Lesbians, and a myriad of other arrangements.

If incomes remain low the outlook for those big glossy homes built during the faux boom is likely to be something like rooming houses for five unrelateds or young folk taking an unused chunk of their parent's home. Having higher numbers of occupants per existing structure doesn't bode well for selling off the homes having fallen or about to fall into the laps of bankers.

Half of mortgage holders are either at breakeven or "underwater" with both having to take a goodly sized check to closing.

[Jack]

Barbara? When someone posts something as seemingly silly as yours I like to extend a special invitation to them to support their contention. If you have something "out of the box" that's really cool, I'm sure you could sell it to those like Mike and millions of others either under or unemployed. Perhaps you could test market it here?

Any thoughts on how folks became so much lazier and less creative since the Clinton era of unusually full employment?

[andy]

thank you for your share.

[Barbara Cruz]

No problem Jack. Just because we didnt have high unemployement during clinton, does not mean that people were doing "important tasks". The downturn has washed away jobs that were seemingly useless and whether you like it or not, thats the truth. If people want jobs so bad, they can start a business.

[Jack]

Barbara -- Not much of a response. What do you "feel?" were the "unimportant tasks" "washed away?" and why were folks being paid to accomplish them before Bush got in?

In a D E M A N D limited economy what businesses would you advise beginning? With folks being pretty well cleaned out and banksters being pretty negative as well, perhaps those that can be started up with little to no investment would be most useful.

Thanks, and "Clinton", as all proper nouns is capitalized aw with my name and yours.

[Barbara Cruz]

Demand limited to what? If your going to start a business in a completely saturated market then go right ahead but speak for yourself.

[Jack]

In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay[1] (see also supply and demand). The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time.
Economists record demand on a demand schedule and plot it on a graph as a demand curve that is usually downward sloping. The downward slope reflects the relationship between price and quantity demanded: as price decreases, quantity demanded increases. In principle, each consumer has a demand curve for any product that he or she would consider buying, and the consumer's demand curve is equal to the marginal utility (benefit) curve. When the demand curves of all consumers are added up, the result is the market demand curve for that product. If there are no externalities, the market demand curve is also equal to the social utility (benefit) curve.
Elements of the Law of Demand As Melvin and Boyes note the law of demand is defined as:
The quantity of a well-defined good or service that:
People are willing and able to buy.
During a particular period of time.
Decreases/increases as the price of that good or service rises/falls
All other factors remain constant.
Melvin and Boyes (2010)
Demand is a relationship between two variables, price and quantity demanded, with all other factors that could affect demand being held constant.

More at: http://en.wikipedia.org/wiki/Demand_(economics)

In short do you suggest opening a pizza parlor when folks are being laid off in droves? And Herman Cain made his bones by CLOSING over 200 Godfather's Pizzas, tossing thousands out of their modest jobs and putting together a combine to buy what was left of the company?

[Tom]

Normalt er det ikke så indviklet !

[Back Taxes]

Jack, I said that opening a pizza place is a horrible idea. That market is complete saturated.

[NEH]

Barbara, You do realize that if you start a business from the ground up, as opposed to purchasing an established one, requires at minimum at least three to five years of startup capital to cover all expenses of the operation until the business becomes established. And this is in a good economic period. So where are the under-employed or unemployed going to come up with this type of significant capital investment? Go to the Banks? If you go to the Investment Banker with your Business Model and he or she sees that you want to borrow money to cover the startup expenses, he/she will have Security throw you out the door. That is, if the bank is making any kind of loans available...

[NEH]

Oh, BTW, I come from the school of Management that considers any job or work done in an operation as important and that goes down to the level of janitors and grounds keepers. Not just the Board of Directors or Executive Management. Every position within an organization provides value...