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The danger of structural unemployment

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Wednesday, September 07, 2011

BY BEN PRICE

Oregon and the nation at large are currently in the midst of the worst bout of prolonged unemployment since the Great Depression. Any period of time where you have large, languishing populations of people suffering daily is cause for serious concern. Large levels of unemployment affect growth, tax revenues, community confidence, self worth, and these are mild results. If you take a worldview, large-scale rioting and rebellion from London to Kabul all share one thing in common: young unemployed men in large numbers.

Yet, in these troubling times, employers are complaining about how they do not have enough workers. Simultaneously, people are out searching frantically for a job. But, the skills of the available labor do not necessarily transfer over to the searching employer. We call this kind of unemployment “structural unemployment.”

Most people are at least familiar with the term structural unemployment. But what exactly does it mean? The standard definition is that it is a matching issue between a certain segment of Labor supply, and the demand for that Labor. Typically this occurs when there has been a technological change, but no such change has taken place. This is not the automation or computing revolutions, this is the result of a financial policy that made credit too accessible, therefore housing too plentiful.

To illustrate, we should dive a bit into the numbers. In February 2007 in Oregon there were 22,922 people employed in private sector building construction, only a year later there were 17,685 people employed. Now what happened to the nearly 6,000 laborers? They didn’t all die, or leave the state. So what did they do? Well, what could they do? And therein lays the main issue with this recovery: You can’t be a construction worker today, and be a solar panel installer tomorrow. Even if the skills are similar there is some learning curve that will be a serious barrier to entry.  That is the essence of structural unemployment: groups of people whose skill sets are essentially useless. Useless because of a market structure that no longer demands their services.

What people are not talking about, what public leaders seem to go to great lengths to avoid saying is what the effect of structural economic shifts can mean. If a large portion of the population is no longer employable because their skill sets are no longer in demand, then that group will not find employment in that field. Basically, that it won’t ever be the same, that this is a permanent unyielding change. That is how you have prolonged unemployment among active job seekers, when people operate under an assumed return to “normalcy.” At its core, prolonged unemployment is the result of retraining difficulty, and an attitude towards future employment.

This oblivious attitude, this constant pointing to the sliver of sunlight on dark and dreary days, is not only wishful thinking but destructive. By misleading people into thinking that housing will return to its peak, or even worse by talking up logging growth to timber counties that would be ecstatic to have an 8% unemployment level in good years, our leaders do us a greater disservice in denial.

This deception will only prolong the grueling experience that so many Oregonians live with daily. Here's a dirty little secret that doesn't make the nightly news: This is going to continue for a while. The sooner we are more honest with ourselves and take strong, decisive action to rectify our unemployment issues, the sooner we can bring unemployment levels down.

Ben Price has a degree in economics from Oregon State University.

 

Comments   

 
Lisa
+1 #1 Extended Unemployment May Add to the ProblemLisa 2011-09-07 11:25:01
Mr Price did not address the contribution made by the current policy of continuing unemployment benefits month upon month, even year upon year. While no one wants to be on unemployment, it provides a perverse incentive to just hang on until the benefits finally run out. There have been numerous statistics that indicate the unemployed have sudden success in finding a job just before benefits run out...amazing! When benefits run 99 weeks, nearly two years, the reality is that skills grow stale, ambition wanes and the inability to interest employers becomes a self fulfilling prophecy.

Further, there is an underground economy of unemployed working 'under the table' for cash payments that can augment unemployment benefits.

Certainly not every long term unemployed person is gaming the system. This economy has put many a hard working, responsible person out in the street for much longer than anyone anticipated. But continuing to hand out benefits for an extended period may well add to institutionaliz ed unemployment.

We should think about some way to credit the jobless who are pursuing skills or training in addition to employment, versus the individual who has mistaken this safety net for a hammock.
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pat
0 #2 pat 2011-09-07 12:23:29
so is Mr. Price recommending massive retraining programs? In what fields? Where are the jobs? If retraining is the answer, where, and who is going to pay? And once these retrainable folks are retrained, where do they have to move to work? How do they sell the home they are in? The State of Oregon can't and shouldn't try to come up with the money/programs to retrain. I agree with Lisa, the unemployed have gotta wanna.
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Karen
-1 #3 get realKaren 2011-09-09 14:53:54
The comments posted here remind me of the fictitious "Welfare Mama" characters sold to the public in the Reagan era.

Blame the unemployed for losing their jobs, not the unethical business and financial practices that have created this extended economic downturn. Those lazy unemployed should have had their safety net already in the bag, like the financial houses, banks and bailed out businesses. It's their fault they don't have cronies looking out for them in upper echelons of government!

Get real. For every unemployed person "in a hammock" there are hundreds looking for work and leveraging any remaining financial assets - or running up scary debt - returning to college for fresh skills. That money comes from somewhere, cleaning out what's left in the retirement account, or from no longer paying the health insurance premiums.

Legitimate businesses and business people pay a price, too, when significant and growing numbers are suffering. Investing in the educational programs, including tuitions assistance (make keeping it merit-based) to train a workforce quickly in the skills that are needed would be tax money well invested. And a small $ amount compared to the billions in bail outs spent so far. Where's the downside here?

Less crap (like these postings) that abrogate responsibility to society and more skillful business planning are called for from business leaders.
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Lisa
+1 #4 Get ReadingLisa 2011-09-13 11:30:04
Karen why don't you read what I wrote instead of crying foul based on your own erroneous conclusions. I am not blaming the unemployed for their status (initially) but pointing out that the current system of ever expanding unemployment is not working, in more ways than one.

Two years of unemployment has unintended consequences beyond the financial implications. Do you think someone with a 99 week gap in employment is appealing to an employer? Do you think job skills might decline after two years of non-use? When an employer looks at a job application or resume, one of the first things noted is any gap in employment, particularly if lengthy. Paying people not to work creates a perverse incentive not to take a 'lesser' job, or tomove to a more economically viable state, or reinvent yourself through school or training.

Check the statistics. An amazingly high percentage of unemployed find work just as the benefits run out. Coincidence? I don't think so. It's not so much that people are lazy but a) many erroneously believe THEY paid into the system and therefore are owed the time off with pay. They didn't contribute to unemployment, it is an employer based tax. or b)they have unrealistic expectations that they can easily find a job equivalent to the one they lost and are not willing to take something lesser in status or pay. Unfortunately this economic collapse has dashed many expectations and we all may need to accept that the days of wine and roses are over for the near future.

Now Obama has requested even more extensions of unemployment benefits. If this had worked the first two times, why hasn't the needle budged? Maybe it's time to look into a different approach other than sending out checks with no accountability or requirements other than "looking for work."
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Lei
0 #5 So true, LisaLei 2011-09-13 14:19:49
Having worked for state of Oregon many years, I saw the screens showing benefits for "recipients". It isn't just unemployment!
They get Medicaid, housing, food stamps, WIC, cash assistance, childcare. I often thought that they are given every incentive to be idle, and few incentives to work.
And yes, the longer out of work, the more frightened or reluctant --- to enter the workforce. I found that to be the case myself when I stayed home with small children for a few years. And I was not poor and receiving benefits.
When will the Democrats see what they are doing to the poor? I remember years ago Tom Tancredo speaking to a black audience about this very issue and they gave him a HUGE round of applause.
That's because it is the truth.
[OSU - Bachelor of Science - Sociology
1986]
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