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Farewell to the Spectator
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Tentative Praise for Ryan’s New Bipartisan Medicare Plan
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Examiner for Romney, National Review Against Gingrich
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Paul Ryan to Introduce New Medicare Plan with Democrat Ron Wyden
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The Spectacle Blog
One key question in considering demand-side economic policies, such as fiscal stimulus and other deficit spending, is whether the elevated unemployment rate is a product of cyclical or structural forces. If unemployment is cyclical, then boosting aggregate demand would mean that employers would re-hire workers earlier and save the economy a lot of pain. If it’s structural, though, meaning that the economy is undergoing significant changes and there is now a substantial mismatch between workers’ skills and the kinds of skills needed throughout the economy, measures aimed at increasing short-term demand might not do much to help out the unemployed.
In 2003 the NY Fed published a paper examining whether the 1990-91 and 2001 “jobless recoveries” were caused by structural factors. The authors, Erica Groshen and Simon Potter, found evidence that these recessions, compared to past recessions, featured more “permanent relocation” of workers among industries. In other words, when the recessions were over and recovery had taken place, more industries were net gainers or losers of employment. Some industries were left permanently smaller than they were before the recession, meaning that workers couldn’t return to those sectors even when demand and GDP had recovered.
Menbere Shiferaw and John Robertson, economists at the Atlanta Fed, have replicated one of Groshen and Potter’s key graphs depicting unemployment in the 2001 recession:
They write, “We replicated Groshen and Potter’s work with minor data definitional changes and find that for the first 12 months of recovery from the 2001 recession 81 percent of employment was in industries continuing recession employment trends (the top right and bottom left quadrants in the chart).”
So what you would expect in a purely cyclical economy would be for all firms to lay off workers during the recession and then hire them all back during the recovery. But here that was only the case for industries with 18 percent of employment in 2001. A much greater number of workers were in industries that didn’t behave cyclically during the recession: they added jobs when the recession hit and continued adding them after the recovery began.
Shiferaw and Robertson used the same approach to look at the data from the past recession and recovery, assuming that the recession ended in June of 2009.
The results are somewhat similar, but less pronounced. In the Great Recession on 35 percent of employment was in industries that faced cyclical employment trends in the recession. The majority of industries lost or gained jobs permanently (or at least have lost or gained jobs on a continued basis for the past 11 months).
The one outlier in the top right corner, if you can’t make it out, is the “federal government” industry. It gained jobs during the recession and has gained jobs far faster than any other industry during the recovery.
JP| 6.11.10 @ 1:58PM
This is obviously a structural recession as far as jobs are concerned. What makes this recession so pernicious is the whole sale outsourcing of jobs to overseas labor markets. And the government is partly to blame.
When people talk eumphemistically about re-training for new skills, they really don't know what they're talking about - there are very few careers that are not susceptible to outsourcing. Engineering, IT, Project Management, Finance, and even in some cases corporate law are all positions that can now be outsource. What exasperate things is at a time when the federal government should be finding ways to make our businesses more viable, our lawmakers are finding new ways to drive up both labor and operation costs. The recovery is occuring. But it is happening in places like Signapore, Hong Kong, Madras, and Canada (yes, Canada is doing better than us). A company like Apple now can launch a new product line like the iPod G4 with very little work being done in the US. A firm like Oracle can do most of its R&D in India and China (they do), and not Silicon Valley. GE can design and manufacture its high end CAT Scans over-seas. And the list goes on.
Many of those lost jobs are not coming back.
Don Carlson| 6.12.10 @ 6:20AM
I have two sons in a high school that is wasting their time. Are our schools able to prepare our children to support themselves in the world? Is it possible that we have let our schools become day-care centers to the extent that work must be out-sourced to other countries because our young have not the skills to do the work? A while back, Browning Arms was looking for independent machine shops and foundries to manufacture a new line of lever action rifles. Browning could not get a prototype made in the U.S. that achieved the standards necessary for that sort of tool. Ultimately, the rifles were made in Japan.
JP| 6.12.10 @ 8:13AM
Where I live there are (or were) plenty of specialty tool and die shops that can easily do prototype work you speak of. These shops have the latest in CNC grinders and mills, wire EDMs as well as toolmakers with decades of experience. They can file surfaces down to ten thousandths of an inch by hand if they had to. They have fixtures that can grind raiduses down to twenty thousandths. There is litterally nothing that they cannot make.
But these shops are very expensive (anywhere from $150-300/hour shop rate). But as I alluded to above, these shops are closing down due to lack of business. Foundries are another issue. The last 2 foundries in my city closed during the last decade. Both were in business for over a century (One had its roots going back to the Civil War). It wasn't for lack of skill that drove them out, but they couldn't compete any longer price wise. What these skilled metal workers are doing now is a mystery.
Once the process of outsourcing begins it is difficult to recover. It only takes a generation for a nation to lose 5 lifetimes of skilled workers. It isn't something that can easily be relearnt. It becomes a self fullfilling prophecy. I've seen this in IT. Why would a young smart 18 year old learn Computer Sci or eletrical engineering when those jobs are going overseas?
Donna| 6.13.10 @ 8:20AM
I have to disagree JP. My thinking is that there are high school graduates looking for careers in the technical area. They can't perform math on SAT/ACTs to get selected to tech colleges. Every engineer I know is still employed who wants to be that has good skills. I have worked with internationally trained engineers and they cannot compete knowledge wise with American Engineers. This skill went overseas when marketing/business admin was added to degree offerings. It's easier to obtain. America has marketed jobs that a degree is necessary, even for an admin job. We also shut the tech schools down for high school students who are not college orientated leaving them with no opportunity to develop skills with machinery, metals etc.
Oldefarte| 6.13.10 @ 11:13AM
These egghead/economists' studies are typical of the moronic efforts/failures by the present administration. Both cyclical and structural unemployment will occur in economic recessions and expansions due to the natures of their products/services to the demands of the consumers. The current/longevety of this recession is due solely to this administration's egghead/acedemic approach to its solution. Providing government [non] stimulus to the public sector is nothing but WELFARE, since private industry has laid off its employees necessarily in or der to maintain profitability, and so should public industry [but of course, unlike privates, publics/governments only have to TAX THE PUBLIC in order to create revenue]. What is needed now is governmental spending reductions to reduce out deficits/debts. Tax reductions, although needed, will only exacerbate governmental budget shortfalls and need to be postponed until governmental spending becomes reasonable. This Keynesian crap needs to be flushed down the governmental policy making toilet!!!!!
katie| 6.22.10 @ 4:52PM
We are constantly struggling with the economy today. In the middle of this depression hear people talk about their daily struggles and lives:
http://www.livestream.com/free.....c95c3b1210
Robert| 8.4.10 @ 9:28PM
Long-term, structural unemployment is real and is here to stay. Even those economists who are beginning to recognize the problem vastly underestimate the ultimate impact. It is not just about a "skill mismatch." It is ultimately going to be about a total lack of demand for skills (and workers). It is something unprecidented and it is caused by advancing technology. And ,no, it is NOT the same thing that has been going on for decades. Technology is moving faster and faster. In the next couple of decades will will see a staggering level of progress.
For an excellent overview of this problem, check out this book (available as a free PDF): The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. http://www.thelightsinthetunnel.com).
If there were a textbook on this issue of technological unemployment and where it will lead, this book is it. I wish every economist would take a break from data analysis and READ THIS BOOK.
The author also has a blog at http://econfuture.wordpress.com
Moving San Jose | 11.29.10 @ 6:26PM
The economy has been improving since 2008, however the unemployment is still continue to rise, if the companies have not recovered from the loss, it is unlikely for them to hire new people.