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High Unemployment: Structural or Cyclical? (Temporary or Permanent?)
RealClearMarkets ^ | 05/22/2012 | By Gary Burtless

Posted on 05/22/2012 4:22:33 AM PDT by SeekAndFind

Unemployment is edging down, but the fraction of the unemployed who have been idle more than year remains near a record high. In the first three months of the year about 30% of the unemployed - more than 3.9 million people - had been jobless for a year or longer. Before the Great Recession the post-war record for long-term unemployment was set in Ronald Reagan's first term. Even at the worst stage of that slump, however, only about 14% of the unemployed were out of work for more than a year.

The increase in long-term unemployment has raised the specter of a permanent jump in the unemployment rate, one that is linked to a surge in structural unemployment. Most economists distinguish between cyclical unemployment, which rises and falls over the business cycle, and structural unemployment, which persists even when the economy has been expanding for years. Because high unemployment has lasted so long, many observers worry that structural unemployment has now become deeply embedded in the nation's job market.

If true, what would this mean? It would imply that traditional remedies for high joblessness have become less effective. Congress cannot accelerate the pace of the recovery by spending more or taxing less. The Federal Reserve cannot safely push the unemployment rate down to 4½%, using either standard or nonstandard monetary policies. Minneapolis Fed president Narayana Kocherlakota has suggested structural unemployment is now so high the Federal Reserve will have to worry about inflationary pressures when unemployment dips into the range between 6½% and 8%. This represents a major turnaround compared with most of the past two decades. In the late 1990s and in the years just before the Great Recession, inflationary pressures were not very noticeable when the unemployment rate was well below 6%.

Inflation would be reignited at a higher unemployment rate if the long-term unemployed are not fully available to fill new jobs. Structurally unemployed workers find it harder to land suitable jobs compared with the other unemployed. Their skills make them a poor match for current job openings. A couple of theories can account for the transformation of regular unemployed workers into the structurally unemployed. One emphasizes the deterioration in worker skill or morale that is caused by a long unemployment spell. A second highlights the attitude of employers toward the job applicants who've been idle a long time. Employers may regard the long-term unemployed as poor job candidates, even if they have as much schooling and work experience as other job candidates in the unemployment queue.

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TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: jobless; jobs; unemployment

1 posted on 05/22/2012 4:22:40 AM PDT by SeekAndFind
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To: SeekAndFind

Permanent as long as Marxism is fed, supported and voted into law.


2 posted on 05/22/2012 4:24:50 AM PDT by Eye of Unk (Liberals need not reply.)
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To: SeekAndFind
It would imply that traditional remedies for high joblessness have become less effective. Congress cannot accelerate the pace of the recovery by spending more or taxing less.

Those Keynesian "remedies" have never worked. Who is this author?

3 posted on 05/22/2012 4:33:11 AM PDT by central_va ( I won't be reconstructed and I do not give a damn.)
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To: SeekAndFind
It would imply that traditional remedies for high joblessness have become less effective. Congress cannot accelerate the pace of the recovery by spending more or taxing less.

Those Keynesian "remedies" have never worked. Who is this author?

4 posted on 05/22/2012 4:33:30 AM PDT by central_va ( I won't be reconstructed and I do not give a damn.)
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To: central_va

RE: Who is this author?

http://www.realclearmarkets.com/authors/gary_burtless/

Gary Burtless is a Senior Fellow in Economic Studies and the John C. and Nancy D. Whitehead Chair at the Brookings Institution.


5 posted on 05/22/2012 4:58:41 AM PDT by SeekAndFind (bOTRT)
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To: SeekAndFind
Gary Burtless is a Senior Fellow in Economic Studies and the John C. and Nancy D. Whitehead Chair at the Brookings Institution.

Probably another keynesian.

6 posted on 05/22/2012 5:00:11 AM PDT by central_va ( I won't be reconstructed and I do not give a damn.)
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To: SeekAndFind

Cyclical. We are (hopefully) nearing the end of a four year dip in the business cycle. If the dip gets reelected, then I will revise that estimate to an eight year dip in the business cycle, with prayers that the damage will be reversible. If we elect a small government conservative and immediately begin shrinking the federal government, I imagine we will see unemployment drop rapidly. It’s too bad that, conservative as Candidate Romney claims to be, there is little chance of a conservative President Romney.


7 posted on 05/22/2012 5:06:42 AM PDT by Pollster1 (“A boy becomes a man when a man is needed.” - John Steinbeck)
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To: SeekAndFind
Unemployment is edging down, ...

If you buy that I have this bridge for sale ...

169,000 fewer people were working last month, yet the unemployment rate went down through the magic of moving people out of the civilian labor force.
8 posted on 05/22/2012 5:24:32 AM PDT by khelus
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