U.S. Structural Unemployment - the Trillion $ Question

By: Ian Campbell | Wed, Sep 5, 2012
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Why read: Because it is arguable that the most important questions facing America and its politicians today are:

Recall that structural unemployment, simply described, occurs where:

Commentary: There is increasing debate over whether the unemployment now facing Americans and their politicians is of a 'structural nature', or where it is simply of a 'cyclical nature'. There can be little if any disagreement that if current U.S. unemployment is comprised of any significant degree of structural unemployment, that America's unemployment issues are more significant and 'economy threatening' than if they are purely of a cyclical nature. In a paper presented last week at the Kansas City Federal Reserve's Jackson Hole Conference, U.S. economists Edward Lazear (Stanford University) and James Spletzer (U.S. Census Bureau) said that current U.S. unemployment is cyclical and not structural - see referenced paper.

While that paper includes what I think is an excellent background as the meaning of structural unemployment, I don't think it reaches the correct conclusion. This is because as I read their paper, the authors:

all of which is consistent with manufacturing jobs being lost, and some service sector jobs (most notably in education and health services) showing increases.

For me, if it is as simple as 'America is just experiencing cyclical unemployment' and not 'structural unemployment', the percentage relationships of what sectors are employing people, what age groups are being employed, and the average wage rate for each sector and age group within each sector ought not to deviate very much over time.

It seems clear to me that is not what has been, and is, going on in the United States. That in turn leads me to the continuing conclusion that:

I suggest that support for the view that America faces structural employment issues can be found in a recently released report by the U.S. National Employment Law Project (NELP). That report, which apparently looked at U.S. employment trends from 2008 - 2012 included the following chart, which clearly shows the shift to low-wage jobs from what are referred to as mid-wage and higher-wage jobs measured by what are referred to as 'recession (jobs) losses' and 'recession (jobs) gains'.

:National Employment Law Project Chart.jpg

You can read the referenced CNNMoney article for more detail from the NELP report.

Topical References: The United States Labor Market: Status Quo or a New Normal, from The Kansas City Fed, Edward P. Lazear and James R Spletzer, July 22, 2012 - reading time 30 minutes.

Also see:

The low-wage jobs explosion, from CNNMoney, Tami Luhby, August 31, 2012 - reading time 3 minutes.
If unemployment isn't structural, what causes it, from The Washington Post, Zachary A Goldfarb, September 1, 2012 - reading time 3 minutes.
Five Questions About Today's Job Market, from The Wall Street Journal Real Time Economics Blog, David Wessel, September 3, 2012 - reading time 3 minutes.

 


 

Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
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Through the Economic Straight Talk Newsletter Ian R. Campbell shares his perspective on the world economy, the financial markets, and natural resources. A recognized business valuation authority, he founded Toronto based Campbell Valuation Partners (1976), Stock Research Portal (2007) a source of resource companies market data and analytic tools, and Economic Straight Talk (2012). The CICBV* annually funds business valuation research in his name**. Contact him at icampbell@srddi.com.
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