Tuesday, June 14, 2011

Current unemployment

The President (in his NBC interview today), his Jobs and Competitiveness Council (in yesterday's Wall Street Journal), and the media generally seem fixated on the idea that the current unemployment is structural rather than cyclical. The President cites automation, and gives ATMs as his example. The Council talks about a lack of workers with "advanced manufacturing skills", whatever they are. Others have cited offshoring as part of the problem.

Surely this is not the case. ATMs have been around for at least 20 years. (The President's use of this example recalls Pres. Bush Senior's amazement at supermarket scanners, a good 10 years after the rest of us were used to them.) Advanced manufacturing skills have always been needed by industry, and industry has provided the training when it was profitable to do so. People have been complaining about offshoring and competitiveness since the 1980s at least. None of this accounts for the huge increase in unemployment since 2007, or its stubborn refusal to improve.

This unemployment is cyclical. We have (by the Council's count) two million unemployed construction workers who are victims of the housing collapse. This won't change until all the foreclosed, underwater, and short-sale properties are cleared from the market. The financial industry doesn't want to put in the work necessary to restructure mortgages, stage foreclosed properties, and approve short sales. They need to change their attitude. State and local governments are laying off large numbers of teachers, police officers, firefighters, park rangers, and others, and that won't change without more federal stimulus money or a general recovery. Retail stores and restaurants are closing every day, and those workers are stuck too. Measured productivity increases in manufacturing, retailing, health care and elsewhere are often the result of overworking a limited number of employees. This is not a sustainable strategy, and needs to change. Training workers in job-specific skills is a business responsibility, not government.

The Council's recommendations have some merit, but they will not make a big difference in the basic numbers. Speeding up construction permits and tourist visas doesn't buy you much demand. Overall decline in unemployment requires additional fiscal stimulus, in the form of federal aid to local governments and spending on infrastructure and public works. Too bad our politicians don't get it.

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