Tuesday, June 15, 2010

DeLong Cites Structural Factors

Why aren’t more people being hired?... It looks increasingly likely that America’s labour market has developed structural problems that may explain why it is struggling to respond... certain industries, such as manufacturing and construction... geographic factors. Ten percentage points separate the states with the highest and lowest unemployment rates. But the property crash is making it much harder for Americans to move to where the jobs are. A quarter of mortgage borrowers owe more than their houses are worth. Many people are stuck in places with poor employment prospects, unable to leave for cities where their skills may be in demand. Although the economy is starting to create new and often highly remunerative jobs, they are out of reach to those who cannot move....

Now I'm really confused.

Economist Brad DeLong has argued vociferously that what we need is an increase in demand through government spending in order to offset unemployment related to the recession. Unemployment related to an economic downturn is cyclical unemployment and should diminish as economic activity increases.

In the passage above though, DeLong quotes (approvingly?) Ryan Avent who raises the specter of structural unemployment. Structural unemployment is not related the downturn itself, but to broader changes in the economy that mean some jobs are never coming back.

Often, citing structural factors as part of the cause for the recent downturn and continued high unemployment gets one labeled an Austrian (used as an epithet) or of being the heirs of Mellon (liquidate everything!). Certainly DeLong doesn't belong in either of these categories.

Either way, I agree there are structural factors at work in our continued economic problems and they are made ever more painful by the housing crash, which reduces mobility, traditionally a source of strength for the American economy.

As for DeLong's position, as I said, I'm confused. Maybe Strupp can explain it to me.

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brad said...

The key word is "developing." Two years ago we did not have any structural labor market problems. If unemployment kisses 10% for two more years, at the end of them we will have mighty structural labor market problems indeed...

J. Strupp said...

Why do you assume that structural unemployment cannot be related the downturn itself?

I think you're seeing structural unemployment throughout the country right now and it's directly related to our ongoing crisis.

And, as Brad said, it'll get worse the longer we let this thing play out in it's present form.

D said...

Structural unemployment...
If some jobs 'leave never to come back,' is this any cause for concern? Who misses the lift operator?
More importantly, this seems to implicitly state that if some jobs leave, there will be enduring unemployment, which is implausible. Some specific and exact jobs may never return. This does not mean others will not or cannot be substituted. Remember the Luddites who proclaimed that capital equipment destroyed jobs?
There is nothing in the market that prevents jobs from returning. The attempt by fiat to hold wage-rates above their market level and the attempt to prop up various prices (homes) come to mind. Speaking of wage rates... where is my lift operator? Oh thats right, he was priced out of the market. Never to return.

J. Strupp said...

I don't believe anyone is talking about about structural unemployment created by global trade imbalances (although this is an ongoing issue as well).

We're speaking of a long term, presistant period of high unemployment creating severe structural unemployment via insufficent demand, low capacity utilization and the relatively low mobility of the labor force.

"skilled" workers are no longer skilled at some point. Workers have a difficult time finding jobs when they're homeless. Workers have a difficult time finding jobs when they stop looking for jobs altogether.