The issue of structural unemployment has been on the minds of numerous economists and bloggers throughout the year, but particularly in the last few months, after the Bureau of Labor Statistics revised its job openings data lower for 2009 and 2010, and data covering average length of unemployment. The debate centers around whether or not structural unemployment exists in the current U.S. economy, and if so, how best to address the issue.
Long-term unemployment, measured by the average amount of time a worker remains unemployed, is at an all-time high. Between 1981 and 2001, the average length of time an unemployed worker was out of work was about 15.4 weeks. In 2011, the average stands at more than 40 weeks.
Structural unemployment, roughly defined, is unemployment due to a mismatch or disconnect between the hiring needs of employers and the available workforce. This disconnect can result from a geographic mismatch, or a skills gap, or other factors. Lately, more economists are asserting that the recent recession was not just cyclical – like previous recessions – but structural, meaning there was a permanent shift in the composition of our economy.
As an example, Economic Modeling Specialists, Inc., leans toward a stance saying that despite the recent BLS data revision, structural unemployment is becoming more identifiable and the response should be investment in re-training workers. Economist Bill Watkins, of the Center for Economic Research and Forecasting at California Lutheran University, says structural unemployment is real and will continue on a long-term basis. Watkins, who specializes in economic forecasting in California and Oregon, has a strong grasp of the issues facing the Western U.S.
Likewise, Christopher Thornberg of Beacon Economics says the long-term unemployment results from fundamental shifts in the economy, such as the move from traditional shopping to online purchasing, and the increased automation in the manufacturing sector. Thornberg says the unemployment problem is more of a social than economic problem, and that we should be using social policy to solve social problems, and economic policy to solve economic problems.
In the Central Valley, this disconnect is best exemplified in the former construction workers who have been unable to find work due to current unavailability of those jobs and lack of skills needed to shift into new careers.
This structural unemployment is visualized in the Beveridge Curve, an economics graph that measures job openings and unemployment. A curve going outward means more job openings remain unfilled, even if unemployment is up. Ideally, points in the middle- to left-side of the chart show a healthy unemployment rate with stable turnover.
Contrarily, economists like Dean Baker, Paul Krugman, and Christina Romer, former Chair of the President’s Council of Economic Advisers, have argued since last year there is no real structural unemployment, simply a lack of hiring demand brought on by a lack of consumer demand. The argument focuses on evidence that unemployment is different sectors is proportionate to other sectors, e.g. construction unemployment isn’t significantly higher than any other sector.
They argue that the recent BLS revision confirms this condition, and their response is to advocate for more government investment to stimulate consumer demand.
As with all things regarding economics, there are numerous viewpoints, and this Atlantic Monthly piece from June, this one from July, and this one from January, confirm Watkins’ and Thornberg’s conclusions.
Locally, there is growing anecdotal evidence of this structural unemployment, while solid, empirical data is slowly building, too. As an example, at the peak of the housing bubble, approximately 8,600 were employed in the construction sector in Tulare County. As of June, 2011, about 3,800 construction jobs existed in the County.
This debate could potentially impact WIA reauthorization and funding. The U.S. Senate Committee on Health, Education, Labor, and Pensions (HELP) recently released a discussion draft of a proposed WIA reauthorization bill, and potentially includes funding to support innovative workforce development programs with a regional scope. Rep. Buck McKeon (R-CA) also recently introduced WIA Reauthorization in the House.
Whether or not structural unemployment debate is ever settled among economists, it is still very clear skills gaps loom large in Tulare County, with thousands of jobseekers in the region still unable to find meaningful careers.
The WIB’s conclusion is, yes, there is a growing structural unemployment problem that will require a continuing monitoring of which higher-paying occupations are growing, and the organizational flexibility within the workforce development field to adapt training and other job services to close this structural gap.
In the meantime, the WIB will continue to utilize the resources available to augment the skills of the regional workforce so businesses can compete and prosper.
