Sunday, October 24, 2010
Bernanke weighs in on jobless
Federal Reserve Chairman, Ben Bernanke, has recently stated that the high rate of unemployment is more likely a result of weak economic activity. Others believe that this high rate can be attributed to mismatched job skills, which would lead us to assume that there are structural factors contributing to unemployment. Bernanke also says that if weak economic activity is indeed the source, then the problem can eventually be fixed with new policies; however, if structural problems exist then there's less that policy makers can do. While it is not clear yet what the main factor is causing the steady high-rate of unemployment; Bernanke, and others alike, are hoping that it is something policy makers can remedy.
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I think Bernanke is wrong to dismiss the frictional unemployment arguments. While there may be truth to both sides of the argument, I believe Bernanke’s decisions have neglected the frictional unemployment problems. First, the article mislabels frictional unemployment (job searching) with structural unemployment (wage rigidity). I believe it’s easier to implement policies to improve frictional unemployment rather than structural unemployment. Some policies might be reducing unemployment benefits, improving job matching programs, more scholarships/government retraining programs. I think the frictional unemployment argument has a lot of merit and the government should consider what policies they can put in place to help.
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