Opinion

The Great Debate

Why the unemployed stay unemployed

This is a response to Don Peck’s book excerpt “How chronic joblessness affects us all.”

By Gary Burtless
The opinions expressed are his own.

First, from a labor economics perspective Peck’s analysis is basically correct.  In modern capitalist labor markets, long-term unemployment tends to feed on itself via the mechanism that Peck describes.  It gets increasingly difficult for the unemployed to get re-employed the longer their unemployment lasts.  (There are some hard statistics showing this is true, and that it is true regardless of the state of the economy.)  The impact of this phenomenon on the overall unemployment rate became clear in 1980s Western Europe. Countries like France, Germany, Denmark, and Italy that had enjoyed unemployment rates below those in the U.S. for much of the previous three decades found themselves with jobless rates higher than those in the U.S.  More worryingly, their unemployment rates stayed above the U.S. rate for a very long time.

It became clear than much of the difference was the gap between the two continents in long-term unemployment (that is, joblessness that lasts longer than 6 months or a year).   Europeans who remained in unemployment longer than 6 or 12 months tended to stay unemployed, sometimes up until the age they qualified for an old-age pension.  Even when the European job market improved, these unfortunates stayed unemployed.  Employers hired from the ranks of already-employed workers (i.e., those who were on other employers’ payrolls) or from new graduates.  They tended to shun the long-term unemployed.

Second, it appeared that the European long-term unemployed eventually failed to exert any downward influence on European wages.  It was almost as though these unfortunates had become invisible to employers, unions, and governments in the wage-determination process.  The availability of millions of willing – but long-term-unemployed – workers did not restrain unions in their wage demands or employers in their willingness to offer higher overall wages.  What became clear by the second half of the 1980s was that when European economies started to improve, wage gains also started to rise – in spite of the fact that there were still millions of long-term unemployed workers who would have been happy to fill new job openings at wages below the prevailing wage rate.

Third, one popular theory at the time to explain this kind of hysteresis (i.e., the tendency of high unemployment rates to persist for a long time) was that the skills of long-term unemployed workers atrophied the longer they were without work.  Economists said there was “structural unemployment,” by which they meant that the long-term unemployed no longer possessed the skills needed for the industries and occupations that were expanding.   My own explanation is a bit different.  I believe that when the job-seekers’ queue is very long (as it is when the unemployment rate is 7 percent or higher), employers can be very choosy about who to hire.  They can indulge many of their prejudices about which job candidates are most likely to be productive workers and which are most likely to be losers.  A candidate who’s been unemployed 6 months, 9 months, or, God help him, 12 months or longer looks like a very bad bet – even if the truth is the opposite.

How would Keynes advise Obama on jobs?

By Nicholas Wapshott
The opinions expressed are his own.

It’s still the economy, stupid. So if Obama wants to keep his job – and we must assume he does, though he doesn’t seem to be enjoying himself much — he must boost the economy and get the jobless back to work. No president since 1948 has been elected with a jobless figure higher than 7.2 per cent, so with unemployment currently running at 9.1 per cent, he looks headed for certain defeat.

Add the pivotal fact that two of his core groups of supporters, blacks and hispanics, suffer disproportionately from joblessness, at 16.2 per cent and 11.6 per cent respectively, and the president’s prospects look even dimmer. With the White House admitting there is little chance unemployment will fall before the election next year, the president needs some good advice on how to get people back to work, and fast.

What would John Maynard Keynes tell Obama? He once advised Franklin Roosevelt on how to cure unemployment, but he didn’t make much headway. “I saw your friend Keynes,” FDR told his Labor Secretary Frances Perkins. “He left a whole rigmarole of figures.” In turn, Keynes told Perkins he had “supposed the president was more literate, economically speaking.”

How chronic joblessness affects us all

This is an excerpt from “Pinched: How the Great Recession Has Narrowed Our Futures and What We Can Do About It.”

By Don Peck
The opinions expressed are his own.
Last summer, the phone maker Sony Ericsson announced that it was looking to hire 180 new workers in the vicinity of Atlanta, Georgia. But the good news was tempered. An ad for one of the jobs, placed on the recruiting website the People Place, noted the following restriction, in all caps: “NO UNEMPLOYED CANDIDATES WILL BE CONSIDERED AT ALL.”

Ads like this one have been popping up more frequently over the past year or so; sometimes the ads disappear once the media calls attention to them (a spokesperson for Sony Ericsson said its ad was a mistake). But new ones continue to appear.

High unemployment and the education deficit

graduation photo USE THISThe following is a guest post by Bruce Yandle, distinguished adjunct professor of economics with the Mercatus Center at George Mason University and dean emeritus of the College of Business & Behavioral Science at Clemson University. The opinions expressed here are his own.

Last month’s report on U.S. employment growth brought no cheer to job-seekers with a high school education.

In June 2010, the unemployment rate for adults 25 or older with a high school diploma was 10 percent. Whereas unemployment among college educated adults was 4.4 percent. (Overall unemployment was 9.5 percent.)

from Commentaries:

Where the job seekers aren’t

Even in weak employment markets, the United States has typically had a trump card to play. The nation's workers are legendary for their willingness to travel across the country for new opportunities.

The result has been a speedier recovery of job growth than in Europe and possibly a higher productivity rate, since skilled workers are better matched to openings.

With the August employment report on Friday expected to show little improvement in the job market, America has never needed this flexibility more. Yet, at the risk of adding to the gloom, this advantage appears to be fading fast. The good news is that the United States still boasts one of the most dynamic labor markets of any rich nation. OECD rankings of its 30 wealthy member nations put the U.S. far
ahead of other large countries. (It comes second only to Denmark, which has unmatched programs to help the unemployed back to work.)

Getting a summer job: Entrepreneurship for teens

diana-furchtgottroth–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

It’s July, teen unemployment has risen to 24 percent, and you—or your teenage children—still don’t have a summer job. This is a peculiarly American problem.

In Nepal, according to Hudson Institute research assistant and Nepalese citizen Astha Strestha, “teens just hang around all summer and spend their parents’ money.”

Are women better off marrying for money?

Daniela Drake– Daniela Drake, M.D., attended Wellesley College and received an MBA from Stanford University. She, along with Elizabeth Ford, authored the book “Smart Girls Marry Money.” A former McKinsey consultant, she is now a full-time primary care physician. Drake married (for love) and has reaped the consequences. The views expressed are her own. –

I had to pause when I came across a blog out of South Africa that read, “I think a way forward, or backwards some of you might say, is to encourage our smart, savvy and capable daughters to marry for money.” Since I co-authored a book with a similar premise, this sassy assertion definitely grabbed my attention.

The blog’s author Jackie May, an editor for The Times world pages in South Africa, penned these seemingly heretical comments after learning of alarming research by Dr. Caroline Gatrell at Lancaster University in England. Dr. Gatrell found, “women who explicitly choose career over kids are often vilified at work.”

The economic cost of climate change legislation

 Diana Furchtgott-Roth– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.  The views expressed are her own. —

Chairman Henry Waxman of the House Energy and Commerce Committee announced yesterday that his American Clean Energy and Security Act of 2009 “will create millions of jobs, revive our economy, and secure our energy independence.”

The 648-page bill, co-sponsored by Waxman and fellow Democrat Edward Markey, Chairman of the House Energy and Environment Subcommittee, has been the subject of four days of committee hearings this week.  It would set new limits for greenhouse gas emissions, and prescribe radically new standards for energy production and use.

Health care degree leads to higher earnings

diana-furchtgott-roth_great_debate– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.  The opinions expressed are her own. —

The economic outlook is bleak. Unemployment is rising.  Credit markets are dysfunctional.  Students are worried about job prospects, for good reason.

If you’re a young person choosing a career path, forget banking, forget autos, and forget Wall Street.  A new study coming out from the Hudson Institute in January, funded by the Bill and Melinda Gates Foundation, shows that enrolling in a community college and earning a two-year degree or certificate in a health-related profession—the only field that showed significant job gains in November, and the one with the most jobs openings—can open a pathway to higher earnings.

from Ask...:

Reaction to shocking jobless data


November's job losses were the steepest since December 1974, when 602,000 jobs were shed. Analysts polled by Reuters had predicted a reduction of 340,000 jobs.

"This is a clear employment blowout. Firms are reacting as dramatically as they can to make sure they have cost structures they can survive the recession we are in," said Joel Naroff, president of Naroff Economic Advisors.

One reader commenting on the site feels the job losses have not hit bottom. "I predict 30% unemployment by March of 2009. The retailers are gonna tank right after Christmas. Look for some really good deals!" wrote Smacktle.

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