Charts of the day: The rise in structural unemployment

By Felix Salmon
June 20, 2011
new paper seeking to unentangle cyclical from structural unemployment, would suggest that it possibly is:

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Is this jobless recovery a peculiarly American phenomenon? This chart, from a new paper seeking to unentangle cyclical from structural unemployment, would suggest that it possibly is:

change.tiff

I find these numbers quite shocking: after all, it’s hardly as though countries like the UK and Portugal have emerged from the recession unscathed. But the US increase in unemployment over the course of the recession was more than double the increase anywhere else.

That said, the US has historically has a much lower rate of structural unemployment than most of these other countries: the level of unemployment which is baked in to economic reality, before cyclical factors move it temporarily up and down. And what I fear is that the Great Recession has moved the US towards European levels of structural employment, without any kind of Euro-style social safety net.

Here are the charts for what’s happened to structural unemployment in the US. The red lines are the official employment rate; the blue lines are the structural employment rate. The first chart shows the unemployment rate overall; the next four break it down into people unemployed for less than five weeks; people unemployed for between five and 14 weeks; people unemployed for between 15 and 26 weeks; and the long-term unemployed who have been out of work for more than six months.

structural.tiff

What’s going on here is pretty clear. For short-term unemployment, little has changed: the structural rate has been around 2% for decades. But look at any of these charts and they show structural unemployment at an all-time high, with the situation getting much worse the longer the duration of unemployment. Overall, the structural rate of unemployment is now more than 8%, which means that we’ll only dip below that level temporarily, during cyclical upturns.

Measuring structural unemployment is, of course, more of an art than a science, and I’d be astonished if any economist agreed with all of the figures in this paper. That said, it’s entirely intuitive to believe that structural unemployment rose significantly over the course of the recession, and that it’s now painfully high. And that the Obama Administration is, to a first approximation, doing absolutely nothing to address this crisis head-on.

13 comments

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Per EuroStat, from January 2007 to most current period (2011) for each nation:

Nation %pt change start rate
Germany -3.3 9.4
Norway 0.6 2.7
France 0.6 8.8
Sweden 0.8 6.6
Finland 0.8 7.2
Italy 1.9 6.2
UK 2 5.5
Denmark 3.2 4
Portugal 4.3 8.3
US 4.5 4.6
Greece 5.5 8.6
Ireland 10.3 4.4
Spain 12.5 8.2

Posted by GRRR | Report as abusive

This is the ‘benefit’ of being the reserve currency. It’s all that leisure we get to enjoy.

Posted by MyLord | Report as abusive

The first chart is looking at the trough to peak for the US unemployment. If Europe had a slightly different timeline or if Europe had a different starting point, the chart would be pretty misleading.

Posted by jason11 | Report as abusive

Here’s where the largest portion of the structural change in U.S unemployment is to be found:

http://tinyurl.com/3d9q5em

Much of the remaining portion of the structural change in U.S. employment since 2006 is to be found at or below the minimum wage line:

http://tinyurl.com/3ly9zxa

Posted by politicalcalcs | Report as abusive

The paper seems to assume that a rise in the stock price within an industry should be accompanied by a rise in the employment rate in that industry.
Do I have to go on?

Posted by RZ0 | Report as abusive

So long as politicians such as Senators and Representatives are sponsored and supported by rich corporations, and those same rich corporations make stuff in China or Viet Nam, nobody with any power will care much about the structural unemployment rate or look after those blighted by being a member of it.

Posted by FifthDecade | Report as abusive

Krugman on structural unemployment: “But don’t bother asking for evidence that justifies this bleak view (that structural unemployment is a problem). There isn’t any. On the contrary, all the facts suggest that high unemployment in America is the result of inadequate demand — full stop….In other words, structural unemployment is a fake problem, which mainly serves as an excuse for not pursuing real solutions.”

https://www.nytimes.com/2010/09/27/opini on/27krugman.html

See also Dean Baker: http://www.cepr.net/index.php/blogs/beat -the-press/robert-samuelson-calls-attent ion-to-the-incompetent-management-proble m

Posted by SteveHamlin | Report as abusive

Krugman’s comment is simply wrong. Who can deny that the unemployment problem today is largely confined to several industries: Manufacturing and Construction?

For all of Krugman’s pointless bleating, if demand shot through the roof we would still have a huge glut of homes on the real estate market. It won’t help those workers one bit, especially if they are not trained to do work in services or retail or some other demand-driven industry.

If demand takes off tomorrow, it will benefit Chinese manufacturing workers substantially more than US manufacturing workers. Again, these workers simply do not have jobs to go back to. There is no employer that is waiting until demand returns to hire them back. Those plants are closed and those jobs are gone.

Workers in these industries have a skills gap–a mismatch between what the economy needs and what they can offer. Meanwhile, we have a huge shortage of trained knowledge workers with math and problem-solving skills.

Unless and until these workers get new skills, they are unemployed for the forseeable future, even if demand returns.

BTW, GDP is higher than it was at the peak of 2008. Yet we are doing it with 7 million fewer workers.

What does that tell you? Those workers have skills we really did not, or do not need anymore.

Posted by midpointman | Report as abusive

Seconding midpointman, much of our EMPLOYMENT over the past decade was in useless paper-shuffling positions. People were selling, financing, refinancing, appraising, brokering, securitizing…. All to keep the real estate bubble growing. None of them were doing anything useful.

Strip that segment out of the employment picture and we’ve had a structural unemployment problem for a while.

Posted by TFF | Report as abusive

Don’t just follow the money, follow the logic. Demand alone will not work to fix US economy. Consider that top 5% account for an amazing 36% of consumer spending; they clearly are doing just fine. Can the bottom 95% really boost spending enough to repair economy?? No way. For a better understanding of what is wrong with the US read this article on the two capitalisms:

http://www.nolanchart.com/article8752_Tw o_Capitalisms.html

Posted by statusquobuster | Report as abusive

Here is where the structural unemployment is:

http://i53.tinypic.com/1exdhe.jpg

While manufacturing output has remained fairly constant at around 14% of GDP, manufacturing *employment* has collapsed, from 33% of the work force 50 years ago to only 10% today.

The reason? Automation.

The assembly lines that turn out computer chips and circuit boards are automated, with robots doing the work.

America no longer has much work for someone who hasn’t gone to college, but has a strong back and strong muscles and is willing to work hard. Today, machines do that kind of work.

Posted by sinz541 | Report as abusive

Clearly the problem is, as Krugman says, inadequate demand.

Take a country like Bangladesh. Clearly they are poor because they stubbornly refuse to buy SUVs, washing machines, and laptop computers.

Posted by lsjogren | Report as abusive

“America no longer has much work for someone who hasn’t gone to college, but has a strong back and strong muscles and is willing to work hard.”

Unless you’re an illegal alien, in which case you are one of the Chosen People.

By the way, America no longer has much work for people in a lot of white collar professions as well.

Posted by lsjogren | Report as abusive