Is Unemployment Cyclical Or Structural? New Paper Says Mostly The Former

America's current unemployment crisis is predominately the result of a pronounced dip in the business cycle, according to a new paper by economists at the International Monetary Fund. But, structural factors, like shortages of highly-skilled laborers, is keeping the jobless rate high, too, the paper finds.

The authors of the IMF working paper, entitled "New Evidence on Cyclical and Structural Sources of Unemployment," argue that roughly 75 percent of average unemployment is due to a lack of demand in the economy, 25 percent a result of workers not possessing desirable skills.

In other words, the wave of joblessness in America is mostly due to cyclical factors, not inherent structural weaknesses, the paper finds.

The causes of persistently high unemployment since the financial crisis are still a matter of debate. Paul Krugman wrote last September that "structural unemployment is a fake problem, which mainly serves as an excuse for not pursuing real solutions."

Since the financial crisis, a rising unemployment rate has transformed into an all-out unemployment crisis, reaching 10.1 percent in late 2009 from 4.4 percent just two and a half years earlier. By April 2011, it had dropped only somewhat, to 9.0 percent.

The report contends the Great Recession closely mirrors the recession of 1973-1975, another period when shocks to various industrial sectors also played a large role in the rising unemployment.

Long-term unemployment has become a critical problem in the U.S: the average length of unemployment between jobs now exceeds 30 weeks, the report says, which is 10 weeks higher than any other period dating back to the 1960s. The report also cites a 2011 study finding that 20 percent to 25 percent of the recent increase in unemployment can be attributed to "industrial and occupational mismatches" in the workforce, "rather than geographic mismatches."

Over the course of the Great Recession, however, 40 percent of America's country's long-term unemployment crisis comes from a structural mismatches in worker skills, the study finds.

Compounding those structural issues is the foreclosure crisis. Bad housing conditions, the report contends, might "slow the exodus of jobless individuals from a depressed area," making it difficult for people to get to the jobs. That combo -- "skill mismatches and higher foreclosure rates" -- has on its own raised the country's unemployment rate by 1.5 percentage points since the beginning of the crisis, the report says.

And as the length of unemployment increases, the study continues, the already "substantial" effect of structural shocks becomes even "more important," with the worker's change of finding a job dwindling by the day.

Christina Romer, who formerly held a chair President Obama's Council of Economic Advisers, made a similar point in a speech at Washington University in April.

"While I am confident that most of the current elevated unemployment is due to cyclical factors, I am not at all sure that structural unemployment will not become more important going forward," Romer then said. "[S]tructural unemployment has risen somewhat nationwide, and could rise further if we don’t reduce cyclical unemployment quickly[.]"

Combatting that structural unemployment, Romer continued, requires investing in scientific research, better education and programs aimed at helping areas injured by trade. "Some will say that given our desperate long-run fiscal situation, we can't possibly spend more on anything," Romer said "I think this is deeply wrong."

Still, so far, it is the low levels of output associated with cyclical unemployment that has been "clearly the dominant factor" in explaining the unemployment crisis, the report contends. That would indicate that so long as the economy grows, it will bring as least some of America's struggling workforce up with it.

The IMF report stands in contrast to a March report by researchers at the San Francisco Federal Reserve Bank that argues the unemployment crisis to be predominately cyclical. They based their claim on the recent difficulties of young college graduates to find jobs, under the assumption that if the issue is structural, there would still be a demand for college graduates.

Read the working paper below:

wp11106

Comments

[marshallwyattearp]

01:58 PM on 06/04/2011

Johnny,
You're half right.... you're right about the jobs.

On the other hand... If you paid attention to what happened just before the mid-term elections, Democrats explained why they voted to extend the Bush tax cuts.... they did not want to burden companies and loose more jobs.

Democrats know what it takes to make jobs, They know that the only jobs they can make are government jobs that eat up more taxes. However, they are satisfied with keeping enough people out of work, collecting checks for doing nothing, food stams, and what have you; keeping the people dependant on them; expecting votes in return.

What do you think Obama is going to do with the 60 Billion he is raising (from big foriegn oil?) Buy more votes than he did the last time. Or at least try. They haven't learned from the Al Gore escapade. Recount after recount, because he knew that he bought more votes than was being tallied.

[Luis Soto]

11:08 PM on 05/31/2011

ItIt is structural, white collar pcs and blue collar robots are taken the jobs except the cheap chinese human robots that manufacture and the cheap Indian IT humans. But technology is god so the fact that the industrial system is becoming automated cannot be even argued
www.economicstruth.com

[Johnny Exchange]

06:36 PM on 05/23/2011

The best way to get a job is to create one. This is now more true than at any time in our history. Whether it's walking dogs or becoming a social media manager. the key is to find out what people's needs or company's needs are and approaching them with a solution to their problem. You can still apply to jobs that are adverised, but the only way you will feel secure is when you take control.

What is sad about the Democrats is they don't understand this, and all their focus is taking care of the same old tired companies and businesses whose products and services reflect their ideas about what a company should manufacture or sell.

Vote for conservatives in 2012 and focus on candidates who understand this and give tax credits and believe in reduced taxes for new companies.

Outsourcing will only increase in the years to come, so get used the idea and move forward, explaining to businesses why they are better off hiring you instead of alternative that will work for 20% of what you charge. You can communivate better, are available during their business hours and are more accountable,,, just by your geographic location.

[99er2049er]

01:48 PM on 05/18/2011

The problem with articles like this is they fail to understand unemployment from the unemployed peoples perspective. Tens of millions of us have lost our jobs or are working in part time positions, living in poverty, while trying to find a job during the recession. I look 7 days a week, I go on interviews, and try as hard as I can. I even went back to college full time and earned my degree last year. The degree didn't even land me a job.

When you have millions more people out of work than enough jobs to place them in, we will have a high unemployment problem. This also gives the corporations a huge advantage as they can put a laundry list of say a dozen requirements. Every single requirement must be met and often nobody can meet every single requirement, so these companies post for the same job month after month. When a job finally is filled, it isn't stable, meaning within 6 months or a year, the company can simply terminate the position and look for someone to fill it again, or make the person in the job train someone at the company to do the job (this person they train will work at half the price). The job often gets done in a poor manner, but that doesn't seem to matter, the cycle repeats itself.

[iflew]

01:31 AM on 05/18/2011

What insanity! One of my completed undergrad programs was econ, and finance at the upper levels. I even advise banks on investments.

In the 60's jobs were available, and most intelligent or even unintelligent workers could be trained to do an entry job and then move up. To say that workers lack skills is crazy. Some corporations want people that don't need training and that is the problem.

The whole work situation in the US has changed from meritocracy to something else. It has become a contest for people who are successful job getters, and not successful job doers.

Training programs and large corporations have become like the Robert Morse movie "How to succeed in Business Without Really Trying".

Money is funneled to the nonproducers, and production has been outsourced offshore.

[99er2049er]

01:50 PM on 05/18/2011

I agree. The training part really bothers me. It used to be when I was interviewing for a job, if there were a couple areas I didn't know, I could let the employer know that I could come up to speed quickly and train to handle the assignment. I would train myself even, so it didn't cost the company any money. But now, if you don't know every single area, they won't even let you in the door, which makes it difficult to ever get to learn new areas that you can take with you to the next job. So it looks like companies are just going after other companies employees, so obviously this leads to a lack of loyalty for the employees as they are jumping ship from one company to the next.

[Arts4u]

08:11 PM on 05/17/2011

Here it is.... the truth about employment in the coming years.....

A report on the EMERGING NEW WORKFORCE. It's not pretty.

http://www.littler.com/PressPublications/Documents/Littler%20Report/Littler%20Report%20The%20Emerging%20New%20Workforce.pdf

[99er2049er]

02:16 PM on 05/18/2011

And what is really frightening is how the republicans are completely fine with cutting off unemployment assistance to these millions of people, while creating legislation and tax programs that continue to grow millions of more unemployed. What do we do with these people, make them homeless?

[Slowfuriousand10hrs]

06:15 PM on 05/17/2011

The irony is the people that are judging the unemployed don't realize the ratio of jobs to citizens. Take into account illegal immigrants, the outsourcing of jobs and discrimination , and what you have is the intentional destruction of American citizens, and other Americans judging them and kicking them down while the benefactors sit back and laugh at teh chaos created by them. GO AMERICA!!!!! Land of the judgemental, disllusioned, and greedy.

[99er2049er]

02:23 PM on 05/18/2011

We see the statistics of 5 to 1, saying there are 5 unemployed people for every job opening. However, there is a more realistic number and that can be 240 to 1 or 500 to 1 or even 1,000 to 1. What this number reflects is my real life experience job hunting. Just on careerbuilder alone, I am running into at least 240 people applying for the same jobs I am applying for. The highest was just over 900 people applying to the same job I applied to. And this is just careerbuilder. This does not count the other job boards posting for these same positions and other people that apply through other avenues.

So I have to guess that at least 500 people are applying to the same exact positions I am applying for. So that 5 to 1 doesn't really apply, more like 500 to 1.

When republicans judge the unemployed, remember these numbers and I am sure many job hunters are very similar to me, applying to jobs 7 days a week, going on interviews, but not quite landing the positions. This is a major recession, sometimes it takes a long time to land a job. I have worked for over 20 years, and when I lost jobs before, I was usually able to land a new job within a few months. Sometimes life is out of our control and we can only try the best we can to land new jobs.

[Slowfuriousand10hrs]

06:01 PM on 05/18/2011

It's sad that this country's infrastructure has come to this, but what is even worse is the fact that asistance to those that have contributed to this country are being put out to dry the way they have. There honestly is no justification for letting this many people suffer b/c of greed and ignorance in a land that is suppose to be a leading example of moral fiber.
America has placed more emphasis on military and defense than it has it's own citizens period, and this alone is cause for investigating, but instead the Fact Ronald McDonald may be retiring makes headlines.

[Overtone]

01:00 PM on 05/17/2011

The problem is neither cyclical nor structural but results from two unmentioned factors:

1. Automation is making millions of jobs disappear.

2. Other countries can produce goods at lower prices.

The late Louis Kelso saw the first one coming decades ago. He invented the Employee Stock Ownership Plan (ESOP) as the first tool in a toolbox to fix the problem. 11,000 firms now use ESOPs.

He then began seeking ways to develop second incomes that could replace half of employment income at a relatively early age.

See A New, New Deal and a Capital Homestead Act at www.aesopinstitute.org for current suggestions that grow from his work.

Second incomes from investment can include equity in good firms that manufacture overseas.
That would bring the income into our country.

Both these plans would deconcentrate the ownership of wealth in a manner acceptable to almost everyone.

See 20 Hours of Toil and a 4 Hour Workday on the same website for a few of the possibilities and implications of deriving half of your income from the mailbox.

[cwest91556]

02:08 PM on 05/17/2011

I worked for companies that had ESOP, it was great! but those companies failed because of NAFTA and other programs that sent out jobs and an entire industry offshore. It had automated and cut labor force by 75% with no loss of produced goods and still failed, because the industry couldn't compete with 6 certs an hour labor in 3rd world countries. in my mind that is totally unfair! and that happened over the course of just a few years, with people working arduously to save their companies, and begging for support from their own government to keep them on a level playing field, but the cheap goods won out and America lost jobs at home!

[Overtone]

02:50 PM on 05/17/2011

That is why I suggest that good companies be included in the equity portfolios of a second income.

What is needed domestically is the income if the jobs go overseas. If you benefit from the income the problem has a potential solution.

Nothing else seems likely to work.

Of course, costs will gradually rise as developing countries develop, but automation is worldwide.

The disaster in Japan has caused many companies to rethink depending on overseas production and that may slow down the process.

But ultimately, everyone needs to aim at receiving half of annual income through the mailbox.

Automation will continue to wipe out many more jobs including those of lots of people who cannot imagine being replaced.

And cutting back the work week becomes practical if you have replaced the income.

That will put a huge dent in the unemployment problem.

And a Human Investment Tax Credit program can generate as many as 6 million jobs and help up to 4 million entrepreneurs. A weak jobs tax incentive program was tried in 1977 and created 2 million jobs.

Uncommon sense suggests we can dramatically reduce unemployment.

See Green Light and other posts at www.aesopinstitute.org to understand why and how.

[99er2049er]

02:27 PM on 05/18/2011

Another problem I find is the corporations are running as lean as they can with employees. Many outsource jobs to consulting or service companies, and these can include foreign countries. Employers also expect every single one of the 12 to 20 job requirements to be met by an interviewer, which often is next to impossible. They don't allow someone that has 10 out of the 12 requirements to train on the job, like they used to allow, so this creates an environment where employers in one industry recruit employees from competing corporations in the same industry. This also makes it difficult for employees who have been out of work to find a job, as the companies prefer to steal employees from other companies (which would seem to create employee loyalty problems).

[Overtone]

03:07 PM on 05/18/2011

This is another reason we need widespread second incomes that make it possible for so many people to leave jobs they dislike.

Many are just bored, but have insufficient income to explore other options.

What the world has always had is wage slavery.

Time to open other possibilities by providing sufficient second incomes for that to become practical.

The vacancies will surprise many and would open new jobs opportunities all through the economy.

[Malcolm Hensley]

12:33 PM on 05/17/2011

Manufacturing jobs down from 2000 by 30% and that cyclical?!!! ???!?

Only over Educated Economist think like this! What is a prerequisite for becoming an Economist - check your common sense at the University gates it won't work here if you want an advance degree? Shouldn't History Classes be a requirement to get an Economics Degree?

We had this discussions in the 1820's! Senator Daniel Webster against Slave/Plantation owning Free Trader Senator John C. Calhoun! Aren't we all glad Daniel Webster had the votes to build the strongest middle class in the world!

Why must we force ourselves to repeat this lesson?

[WASanford]

12:29 PM on 05/17/2011

I find it surprising that no one seems aware that the “baby boomers” have already begun retiring. At the peak of these retirements, more than 10K of them will leave the labor force daily in an onslaught that will last through the better part of two generations. By the time this is over, America's labor force will severely diminished.

But it isn't just the retirement of the baby boomers that will give employers nightmares, there are millions of workers who have languished unemployed for more than 99 weeks while their working skills atrophy away. Getting these workers back up to speed is going to be expensive and time consuming.

Nor is it as if newly graduated students will be able to take up the slack, we've made education expensive enough that we've reduced their numbers as well and education doesn't necessarily easily transfer into working skills.

In just a few decades, we may go from 9% unemployment to a severe labor shortage.

[99er2049er]

02:29 PM on 05/18/2011

I see companies wanting to pay half of what they used to pay for a position, so newly graduates may be able to enter a company at entry level and start off on a fraction of the pay and build themselves up. I have worked for over 20 years and worked my way up to vice president. I even went back to school and earned my degree last year, still haven't landed a job yet. This is fricken brutal.

[WASanford]

12:24 PM on 05/19/2011

That may be easier said than done. My feeling is that education is too expensive for a degree to fetch a sufficiently higher salary to make college worthwhile. Imagine trying to work at these diminished wages while paying off tens of thousands of dollars in education loans. One may as well just go to work if a job is available and spend those 5-8 years earning a salary rather than chasing paper. I’m not against education, I have one myself, but the profits any student might expect from educating themselves have been squeezed out of it.

And it is appalling how little employers are willing to invest in their own work forces. They may well suffer a comeuppance from that!

I have to say I’m sorry to hear of your circumstances, anyone who is willing to work should have a job. I would have expected our government to improve our economy well enough to make that possible. But those efforts have been dropped to continue the petty bickering and ill-conceived social engineering by those on both sides of the political spectrum.

Good luck to you, may you find a job for yourself and your family soon!

[MichaelRCooke]

12:07 PM on 05/17/2011

After sharing that I work 2 part time jobs, make a penny too much to qualify for food stamps and am one job loss from homelessness, it was kindly remarked here that such problems reflect my personal failure and lack of initiative. Want to say that again?

[99er2049er]

02:33 PM on 05/18/2011

Michael, I feel your pain and can relate. These statements are made by republican trolls on this board. They tell those of us who may have been top earning professionals to go take a job working at McDonalds or pick lettuce, yet even these companies wouldn't hire us for these positions. Why would they? They know we will look for our normal higher paying professional jobs and the second we find one, we would leave.

One major problem I see that relates to you is the lack of any security in jobs anymore. I worked nearly 20 years for the same company, I invested my loyalty and hard work into it, until it merged with another company and we lost our jobs. I went through several companies that ran out of money and fired us or went out of business. I went through another company that sold the company and they fired everyone a week before Christmas. And I worked for some that simply fired people because we were line item expenses on their books.

So how does someone find any stable job or security anymore? If you work hard and then lose your job, you can be months or even years out of work and looking for a job, only to be fired again. For those that never get fired and have a job, be grateful, because you can end up out of work for a long time if you lose your job.

[mrhandyman3105]

11:53 AM on 05/17/2011

Whoever did this research probably sat in some office reading some "classroom" business model textbooks by educators, or articles written by incompetent reporters. Either that or wrote the report to match what his management wanted to hear which is more likely. There is no way that whoever conducted this research received any input from current unemployed middle-class workers or conducted any hard analysis themselves of real (raw data) current unemployment statistics or average public opinion data.
To put it short, it's a bunch of "hogwash".

[laura r]

11:42 AM on 05/17/2011

The San Francisco Federal Reserve is right. Who listens to IMF anymore they are consistently wrong.
I live in the Bay Area: College grads are going home and living with their parents for lack of a job. If they get a job it is working for Walgreen drug store.

During this time of down turn, multinationals have been laying people off in the U.S and hiring in China and India.
Hey, but it is a good excuse for not doing anything about the jobs for America.

If we can boondoggle ourselves out of this depression, that word is going to be enshrined in the hearts of the American people for years to come.
Franklin D. Roosevelt

[Union Taxpayer]

11:39 AM on 05/17/2011

25 percent a result of workers not possessing desirable skills.
That just means they cant do slave labor 16 hours a day for minimum wage.

[99er2049er]

02:35 PM on 05/18/2011

I have run into issues where employers won't invest in new skills training or even if I train on my own, they don't want to invest in the money it takes to apply those skills. As many small businesses operate on a tight budget, so it's difficult to get all the skills you need from each company to apply to the next company and the next company expects you to have all these skills before they hire you, so many are caught in a catch-22.

[cwest91556]

10:47 AM on 05/17/2011

Taking advise from or putting credence in what the IMF has to say about economic things is like consulting with locals criminals as to the location of anything valuable they can put their hands on. They are in a bank to make money any way they can, and duping countries and business into profitable ( for them) situations is just what they do. Biggest crooks in the world and their leader shows their contempt for people in his recent arrest and previous activities!