We hear from surprisingly many quarters these days that governments in Europe and North America, and their central banks, should give up on the expansionary policies they have pursued to try to create jobs. The high unemployment currently afflicting the North Atlantic, critics of government stimulus maintain, is not cyclical but “structural,” and thus cannot be alleviated by policies that boost aggregate demand.
Let me be the first to say that structural unemployment is a true and severe danger. When people who in other circumstances could be happy, healthy and productive members of the workforce, but lack the skills, confidence, social networks and experience needed to find work worth paying for, we obviously have a problem. In addition, if unemployment in Europe and North America stays elevated for two or three more years, it is highly likely that we will have to face it. For nothing converts cyclical unemployment into structural unemployment more certainly than a prolonged period unable to find work.
However, is that true today? Does it look right now as if the biggest problem facing the economies of Europe and North America is structural unemployment? It does not.
Let us remember what structural unemployment looks like. The economy is depressed and unemployment is high not because of slack aggregate demand generated by a collapse in spending, but instead because “structural” factors have produced a mismatch between the skills of the labor force and the distribution of demand. The structure of demand by consumers is different from the jobs that workers are capable of filling.
For example, suppose that you have many workers qualified and skilled to work in construction, but households have decided that their houses are more than large enough, and wish to fill them with manufactured goods. This would produce structural unemployment to the extent that the ex-construction workers could not do things in manufacturing that would make it worthwhile for manufacturing firms to hire them.
In that case, we would expect to see construction depressed: firms closed, capital goods idle and workers unemployed. However, we would also expect to see manufacturing plants running at double shifts — the money not spent on construction has to go somewhere, and, remember, the problem is not a lack of aggregate demand. We would expect to see manufacturers holding job fairs, and when not enough workers showed up, we would expect to see manufacturers offering higher wages to attract workers into their plants and then raising prices to cover their higher costs.
The size and duration of the excess unemployment of ex-construction workers might be substantial and long lasting. It might require significant time to retrain construction workers and plug them into social networks in which they become good manufacturing workers. We might see prolonged and high unemployment in the construction sector and in regions that had seen the biggest previous construction booms.
However, depression in the construction sector and unemployment among its ex-workers would be balanced by exuberance in the manufacturing sector, rising prices for manufactured goods and long hours and high wages for manufacturing workers
That is what “mismatch” structural unemployment looks like — and it is not what we have today, at least not in Europe and North America. In the past three years, employment in construction has shrunk, but so has employment in manufacturing, wholesale trade, retail trade, transportation and warehousing, information distribution and communications, professional and business services, educational services, leisure and hospitality and in the public sector. Employment is up in health care, Internet-related businesses and perhaps in logging and mining.
In the US, the past three years have seen employment fall from 137.8 million people in July 2007 to slightly less than 130 million in July this year — a decline of 7.9 million during a period in which the adult population grew by 6 million. What we have witnessed is not a shift in demand into sectors lacking an adequate number of qualified and productive workers, but rather a collapse in the level of aggregate demand.
This may well look like structural unemployment in three years. In three years, we may well see labor shortages, rising wages and increasing prices in expanding sectors, accompanied by high unemployment elsewhere in the economy.
However, that is not our problem now. Sufficient unto the day is the evil thereof.
J. Bradford DeLong, a former US assistant secretary of the Treasury, is a professor of economics at the University of California at Berkeley and a research associate at the National Bureau for Economic Research.
Copyright: Project Syndicate
With escalating US-China competition and mutual distrust, the trend of supply chain “friend shoring” in the wake of the COVID-19 pandemic and the fragmentation of the world into rival geopolitical blocs, many analysts and policymakers worry the world is retreating into a new cold war — a world of trade bifurcation, protectionism and deglobalization. The world is in a new cold war, said Robin Niblett, former director of the London-based think tank Chatham House. Niblett said he sees the US and China slowly reaching a modus vivendi, but it might take time. The two great powers appear to be “reversing carefully
As China steps up a campaign to diplomatically isolate and squeeze Taiwan, it has become more imperative than ever that Taipei play a greater role internationally with the support of the democratic world. To help safeguard its autonomous status, Taiwan needs to go beyond bolstering its defenses with weapons like anti-ship and anti-aircraft missiles. With the help of its international backers, it must also expand its diplomatic footprint globally. But are Taiwan’s foreign friends willing to translate their rhetoric into action by helping Taipei carve out more international space for itself? Beating back China’s effort to turn Taiwan into an international pariah
Typhoon Krathon made landfall in southwestern Taiwan last week, bringing strong winds, heavy rain and flooding, cutting power to more than 170,000 homes and water supply to more than 400,000 homes, and leading to more than 600 injuries and four deaths. Due to the typhoon, schools and offices across the nation were ordered to close for two to four days, stirring up familiar controversies over whether local governments’ decisions to call typhoon days were appropriate. The typhoon’s center made landfall in Kaohsiung’s Siaogang District (小港) at noon on Thursday, but it weakened into a tropical depression early on Friday, and its structure
Since the end of the Cold War, the US-China espionage battle has arguably become the largest on Earth. Spying on China is vital for the US, as China’s growing military and technological capabilities pose direct challenges to its interests, especially in defending Taiwan and maintaining security in the Indo-Pacific. Intelligence gathering helps the US counter Chinese aggression, stay ahead of threats and safeguard not only its own security, but also the stability of global trade routes. Unchecked Chinese expansion could destabilize the region and have far-reaching global consequences. In recent years, spying on China has become increasingly difficult for the US
RSS