Unemployment: Strucs vs Cycs

By Felix Salmon
August 25, 2010
Brad DeLong places himself squarely in the camp of the Cycs rather than the Strucs when it comes to Jim Ledbetter's distinction between economic unemployment theorists. The Cycs think that unemployment is cyclical and will fall as demand grows; the Strucs think it's structural, and the result of a mismatch between the jobs available and the unemployed workers looking for employment.

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Brad DeLong places himself squarely in the camp of the Cycs rather than the Strucs when it comes to Jim Ledbetter’s distinction between economic unemployment theorists. The Cycs think that unemployment is cyclical and will fall as demand grows; the Strucs think it’s structural, and the result of a mismatch between the jobs available and the unemployed workers looking for employment.

DeLong reckons that there can’t be much of a mismatch, because there’s precious little evidence of excess demand for labor in any industry. But this ignores, I think, globalization: companies which can’t fill jobs domestically simply outsource them, or set up shop abroad. Rather than looking just at U.S. employment figures, it would be helpful to look also at the total number of people employed by U.S. companies, and see whether that’s showing a different trend.

I also think it makes sense to break the Struc argument down into its component parts: the inability of the unemployed to find work, on the one hand, and the inability of employers to find good employees, on the other. The first part seems to be undeniable, and it’s surely getting worse as the length of time that people have been looking for work rises inexorably. The longer you’ve been without a job, the harder it becomes to get one, until you become unemployable.

Meanwhile, just because it’s hard to find good employees doesn’t mean that your business is booming and that there are lots of incentives for the unemployed to join your industry. The Cycs could well have a point here — if we get an uptick in total demand, then that might help increase employment in the parts of the economy with tight labor markets. But for the time being, employers who can’t find the employees they want seem to be resigned to simply keeping on going with the employees they’ve got: dreams of expansion have given way to grim survival and a refusal to take on extra debt or risk. And they certainly don’t want to risk raising their prices in this economy, even if they suspect they could get away with doing so.

And then there are all the stickinesses in the labor market: people like to stay where they are, rather than moving to where the jobs are. (This fact is only exacerbated by high homeownership rates.) They tend, certainly in the first instance, not to even look for jobs which pay much less than they were last earning: if you used to be a high-producing subprime mortgage originator, it’ll take a while before you consider training to be a yoga instructor. And then, by the time that you capitulate to the new economic reality, you’ve been unemployed for so long that your chances of getting any job at all have dissipated significantly.

Empirically, there’s no doubt that the Cycs have been proved wrong in their forecasts: unemployment now is significantly worse than the Obama administration forecast even without the benefit of the stimulus package.

Yes, at the margin, government stimulus can create jobs. Especially if its carefully targeted towards things like small-business lending and arts subsidies. But job creation is more of an art than a science, and there’s always a chance it’ll fail. Especially if you attempt it in the face of full-bore Republican obstructionism in Congress. So the political reality is that high unemployment is going to be with us for the foreseeable future. Which is something that I’d guess both the Cycs and the Strucs would agree with.

(Via, and for, Heidi)

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