Structural Unemployment

Economists do it with models had this to classify unemployment, and especially structural unemployment.

I’ve written about the different types of unemployment before, but let’s recap:

  • Frictional unemployment: the unemployment that happens simply because it takes a worker some time to find a new job after he gets laid off. In a perfect world, firms looking to hire would be circling the airspaces of the firms laying people off like hungry buzzards, but instead workers have to go and actively seek companies out after they finish licking their wounds from having gotten laid off. (Some of you may remember that this process was even more fun in pre-Internet days.)
  • Cyclical unemployment: the unemployment that happens simply because the economy is in the toilet at a particular point in time.
  • Structural unemployment: the unemployment that happens because there is a mismatch between the skills of unemployed workers and the needs of the economy. In other words, this:

    The stormtroopers have two options: They can either retrain so that they have skills that their economy needs or they can be entrepreneurial and figure out how to use their existing skills in a new way that their world is willing to pay for. I feel particularly bad for the specialized stormtroopers, since their skills are less likely to be transferable to new jobs. At least they have a bright future as special guests at ComicCon.

Some evidence on the importance of structural unemployment was provided by this post from a VP at the St. Louis Fed.

Here is a plot of the U.S. BC using JOLTS data. Both job openings and unemployment are divided by a measure of population (16+ civilian). The dots represent the empirical BC and the solid line represents a theoretical BC.

A fairly conventional interpretation of the pattern above is that the U.S. experienced a cyclically-induced increase in unemployment; at least, approximately up until the recession was formally declared ended. These are the blue dots (lying close to that BC line I am forcing into your brain). Since then, something screwy appears to have happened in the labor market. There is evidence of increased recruiting activity, but no evidence of declining unemployment (the red dots).

The post may have more than most would want on the question of evidence, but the key is that there are increased vacancies that don’t reduce unemployment.  That seems consistent with structural unemployment.  It also tempers what we should expect from fiscal or monetary stimulus.


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