Press Releases | Jobs and Unemployment

News from EPI Debunking the theory of structural unemployment

For Immediate Release: Wednesday, September 22,2010
Phoebe Silag or Karen Conner, 202-775-8810

Unemployment has remained at 9.5% or above for the past year and is likely to remain elevated or inch even higher through the end of 2011. The reason for this prolonged jobs crisis is fairly simple:  The bursting of the housing and stock bubbles and the financial crisis lead to a severe cutback in household consumption and business investment. The policy conclusion drawn from this narrative is that we need faster growth to increase the demand for workers and reduce unemployment.

But many are promoting a different, misguided narrative, that a large share of unemployment is “structural,” meaning that there is a mismatch between unemployed workers and the jobs becoming available. Structural unemployment would result from workers having inadequate skills, or not living in the places where there are jobs. Some have postulated that employers have substantially revamped their production processes in this downturn, thereby eliminating the need for many of the types of workers who are currently unemployed. Still others suggest that the housing bubble lead to a bloated construction sector and many of those jobs will never come back, leaving many construction workers needing to seek employment in different professions for which they may not be qualified.

Why does the cause of our high unemployment rate matter? Because it will dictate the policy prescription. The policy implications of structural unemployment would be that (1) it would be foolhardy to pursue policies that increase the demand side of the equation (fiscal stimulus, either tax cuts or increased spending, or monetary policy) to lower unemployment; and (2) the appropriate policy is to offer education and training to the unemployed to help them make a transition to new occupations and sectors.

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