Even as the economy continues to grow, unemployment could rise over the next year to as high as 10.1 percent, according to a new paper by the San Francisco Fed (hat tip to the Wall Street Journal).
The paper's authors, economists David Lang and Kevin Lansing, say that if the economic growth in the first half of 2011 is "at or below" the potential for growth, then unemployment will rise. And, they say, it's looking like growth won't meet its potential, which is estimated to be at least 2.1 percent annually for the next five years. Citing a rule called "Okun's law," the economists say that changes in the unemployment level generally correspond to changes in GDP, or economic output. If GDP growth remains lackluster, then unemployment could increase to 10.1 percent, from its current 9.6 percent.
The National Bureau of Economic Research said last week that the recession ended in June 2009, a technical demarcation that means the economy stopped shrinking and started growing. Indeed, according to data from the St. Louis Fed, the GDP bottomed out during that period and grew steadily over the next four quarters. Still, growth was modest. The seasonally adjusted annual growth rate for the GDP, according to St. Louis Fed data, was 0.9 percent in the second quarter of this year.
Economists, such as Minneapolis Fed president Narayana Kocherlakota, have argued that the unemployment problem is "structural," or that there is a "mismatch": "Firms have jobs, but can't find appropriate workers. The workers want to work, but can't find appropriate jobs," Kocherlakota said last month. "There are many possible sources of mismatch -- geography, skills, demography -- and they are probably all at work." Others, though, such as Paul Krugman, have dismissed that theory as "foolish," saying the problem is simply that companies don't want to hire -- that demand for labor is low. "Job openings have plunged in every major sector, while the number of workers forced into part-time employment in almost all industries has soared. Unemployment has surged in every major occupational category," Krugman writes.
The economic picture for most of the country remains bleak, as the net worth of American households and non-profits dropped in the second quarter of this year to a level not seen since the third quarter of 2009.