Tuesday, September 14, 2010
More To Unemployment Than Low Demand
Why isn't unemployment bouncing back yet? Americans tend to expect immediate economic recovery, and in the past they have in essence gotten it. Why is this recession different? Some of the explanation is simple - this recession was worse. Decreases in GDP were the largest experienced in the post-war period. But economists are becoming worried that the high unemployment may be in part not due to low demand/GDP problems but rather that it is structural. Rising GDP had not led to a correlating decrease in unemployment as predicted by Okun's law. Unemployment is not decreasing even with increasing job openings. Jobseekers may simply not have the skills demanded by employers. Many industries such as construction are still down, and will likely remain so for some time. Thus these workers cannot get jobs in that sector, and they are not skilled for other jobs. Has the recession permanently restructured the economy? Only time will tell.
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I don't think the recession has permanently restructured the economy. For one, if people can't find jobs in their sector, they will try to find other work even if it does have lower wages. Many people do believe there is a reason for the recession occurring for this long. The normal business cycle fluctuates between recession and prosperity. Some people think that that we were at the expansion part of the business cycle much more than typically during the 90's. So since we were at the expansion part for so long, the downward part may be proportional.
ReplyDeleteThe structural shift of the economy will make recovery in the short term harder. The workforce will have retrain and retool in order to be productive in the new economy. I know through the principles of economics this restructuring of the economy will occur and over time our GDP will rise as the economy strengthens.
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