10/23/10 5:49 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 1 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

Grasping Reality with Both HandsThe Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, Reality-Based, and Even-HandedDepartment of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 7080467; delong@econ.berkeley.edu.

Economics 210aWeblog ArchivesDeLong Hot on GoogleDeLong Hot on Google BlogsearchAugust 24, 2010

Identifying Cyclical vs. Structural Unemployment: A Guide for

Slate Writers

Over at Slate, James Ledbetter says that he cannot referee between the two gangs ofeconomists warring over the causes of high unemployment.

But he is wrong.

He can.

Here is how:

Suppose that you have not cyclical unemployment generated by a collapse in aggregatedemand but structural unemployment generated by mismatch, suppose you have asituation in which the structure of demand by consumers is different from the jobs thatworkers are capable of filling. Suppose--this is Berkeley, after all--that we were in anice equilibrium in which some workers were baristas making lattes and other workerswere yoga instructors teaching classes and that all of a sudden we have had a big shiftin demand: that consumers decide that they want few moments of wired, freneticcaffeination and more moments of inner peace.

What would we expect to find happening?

We would expect, first, coffee bars to stand empty as people hoarded their quarters forthe next yoga lesson. We would expect coffee bars to fire baristas, and to close down.But we would also expect yoga studios to be crowded, and yoga instructors to beteaching extra classes, and working long hours, and raising their prices, and trainingex-baristas to chant properly, do the downward-facing dog and the lizard, and teachothers how to achieve inner peace.

The size and duration of the excess unemployment of ex-baristas might be substantialand long-lasting. It takes quite a while to retrain a barista as a yoga instructor. Those

Dashboard Blog Stats Edit Post

10/23/10 5:49 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 2 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

seeking training might have a difficult time getting the attention of and apprenticingthemselves to the yoga instructors doing land-office business--given how mercenaryand grasping and eager to catch the wave of the market we all know yoga instructors tobe.

But depression in the coffee-bar sector and unemployment among ex-baristas would bebalanced by exuberance in the yoga-studio sector, rising prices for yoga lessons, andlong hours and high wages for yoga instructors.

That is what "mismatch" structura unemployment looks like--one sector depressedwith a lot of idle excess labor, a second sector booming with rising wages and prices.

What do we have in America today?

Well, over the past three years...

employment in logging and mining has risen by 11 thousandemployment in construction has fallen by 2.1 millionemployment in manufacturing has shrunk by 2.4 millionemployment in wholesale trade has fallen by 437 thousandemployment in retail trade has fallen by 912 thousandemployment in transportation and warehousing is down by 333 thousandemployment in publishing, except internet is down by 147 thousandemployment in motion picture and sound recording is down by 34 thousandemployment in broadcasting, except internet is down by 41 thousandemployment in telecommunications is down by 54 thousandemployment in financial activities is down by 921 thousandemployment in professional and business services is down by 1.3 millionemployment in educational services is up by 197 thousandemployment in health care is up by 789 thousandemployment in leisure and hospitality is down by 467 thousandemployment in other serivces is down by 32 thousandemployment by the federal government is down by 330 thousandemployment by state and local governments is down by 127 thousand.

All this in the decline from 137.83 million people employed in July 2007 to 129.95million people employed in July 2010--a 7.88 million decline in employment during aperiod in which the adult population has grown by 6 million.

I see employment growth in (a) internet, (b) health care, and (c) logging and mining. Isee employment declines everywhere else.

That does not look like a story of "mismatch" unemployment--in which demand shiftsin a direction that the existing labor force cannot cope with, and the result is structuralunemployment in declining sectors and occupations and boom times and rising wagesand prices in those sectors and occupations to which demand has shifted. That doesnot look like that at all.

Brad DeLong on August 24, 2010 at 05:44 PM in Economics, Economics: Labor,Economics: Macro | Permalink

10/23/10 5:49 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 3 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

Reblog (0) |

Favorite

| Digg This | Save todel.icio.us | Tweet This!

TrackBack

TrackBack URL for this entry:http://www.typepad.com/services/trackback/6a00e551f080038834013486714f16970cListed below are links to weblogs that reference Identifying Cyclical vs. Structural Unemployment:A Guide for Slate Writers:

Comments

John said...But do you account that for every one guy joining the logging and mining industry,there's another five guys getting jobs in the "backup singer in a Mounty costume"?

Reply August 24, 2010 at 05:54 PMMarton H said...Brad, your argument falls apart if you consider automation and technological progress.To torture the analogy further: The barista could have been replaced by an automatedespresso machine. The yoga instructor could have been replaced by the Wii Fit Mk2.Both are structurally unemployed and there is no offsetting increase in employmentanywhere.

Now this might never happen in the yoga sector, but it is definitely happening inmanufacturing. Even in China - see Foxconn's recent announcement that they areplanning to replace large amounts of expensive sweatshop labour with robotics.

Reply August 24, 2010 at 06:18 PMSora said...I'm not sure how you "don't see" mismatch employment, when you just describe asituation in which two industries are surging (health care and internet, logging is tootrivial for this purpose) and everywhere else is falling. How is that different from thescenario you described?

Also, it's certainly possible to have both cyclical and structural unemployment. But Isuppose what you're arguing against is the implication that Slate pointed out: if there isa component structural unemployment, there might be little that the government cando, which goes against your long-standing desire to see fresh stimulus measures.

Reply August 24, 2010 at 07:00 PMPaul Yarbles said...What Marton H said. Also, under the current economic regime, here in the good oldU.S. of A., the global labor arbitrage can often kick in when technology isn't up tosnuff.

Jesus, can't economists even imagine the possibility that today's system cannotmaintain wide spread living standards? That there's simply no good reason to hiremany Americans at current wages? And that the road we're on leads us back to a

10/23/10 5:49 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 4 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

future where a tiny minority of super wealthy aristocrats employ the rest as low-paiddomestic servants?

Maybe economists should open up their minds and entertain the possibility of otherroads. There must be some new maps somewhere to replace the shitty old oneseconomists now solely use.

Reply August 24, 2010 at 07:00 PMC. said...The yoga instructor jobs would have been outsourced to India or China via Cisco'sTelepresence technology. We have both structural and cyclical unemployment.

Reply August 24, 2010 at 07:21 PMBoulding Guy said in reply to Marton H...The place to look for offsetting employment in your example is in the manufacturingsector, specifically automated espresso machine and Wii gadget manufacturingenterprises. Admittedly, there is no particular reason to expect the number of jobsestablished in those enterprises to equal the two lost in the example, or to expect thatin an open economy the new jobs will be domestic ones, and/or that the total revenuegenerated from bad coffee buyers and Wii yogis and the gadget sellers to exceed theprior period's total revenue (i.e. GDP growth). Such a happy outcome is an article offaith and hope in the collective cards dealt by the invisible hand. And, because you'repositing a profit incented substitution of capital for labor, the wage bill would likelyshrink and profits (and/or rent and interest) would go up in this short run. So it's backto Say's law contentions, and the question of how intra-period capital accumulationsget endogenously deployed, to discover that period's aggregate income level.

Also, you used the term technological "progress" in your example. Technological"change" would keep our heads on straighter, as "progress" implies that the outcome isconsistent with an agreed upon objective function (i.e. we 'wanted' the unemploymentand profit driven shift in accumulated capital, or at least agreed that that outcomewould represent a preferable tradeoff). When the FOMC takes its coffee breaks, theyshould ask their baristas what they think.

Reply August 24, 2010 at 07:25 PMWill Ambrosini said...Uhhh... What if they pay the baristas to wait for new baristas jobs to open up?

Reply August 24, 2010 at 07:41 PMJames Ledbetter said in reply to Sora...This is James Ledbetter, I wrote the underlying article that provokedthis.....hypercaffeinated response.

I'll let Yarbles and Marton H. speak for me. I think there is a term in classical rhetoricfor people who attack an argument for being X, and lacking Y, and in so doing, invokeX and exhibit Y. If I could recall that term, I would state it here, but for the future Iwill call it "a DeLong."

Reply August 24, 2010 at 07:47 PMJohn said...Since healthcare is the fastest growing sector, I take it arguments that this is structuralare arguments that we need to take dramatic action to reform healthcare?

Reply August 24, 2010 at 07:56 PMDrDick said in reply to Paul Yarbles...That would require them to acknowledge that capitalism is a flawed and ultimately

10/23/10 5:49 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 5 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

failed economic system (actually repeatedly failed at this point).

Reply August 24, 2010 at 08:16 PMOmega Centauri said...I'll go with Yarbles argument @7:00, I think we may be undergoing a transition to adifferent economy. Probably one that won't support the level of wealth we have takenfor granted. In addition to the reasons he gives we have (1) the end of artificial stimulus from financial engineering.(2) tightening resource constraints.Look at how the price of oil tracks sentiment about the economy in general. Any goodnews sends the price soaring. Crappy news like we've had the past couple of weekssends it back down. If we (and I mean the world in general) ever got back on a robustgrowth trap, oil would spike high enough to scuttle the recovery.

So we are left, trying to play central bank financial engineering games to reanimatesomething, that may have good physical reasons for not doing as we wish.

If we had strictural unemployment in the Ledbetter sense we would see industry XXXloses 1milion, and industry YYY gains 200K. Then we ask, if the former XXX could beinstantly retrained would the demand from YYY expand to employ them? I doubt weneed several million new healthcare and internet workers, even if we had aninexhaustable supply of trained candidates.

Reply August 24, 2010 at 08:31 PMbakho said...Dean Baker correctly argues that with either "uncertainty" or structuralunemployment, employers would increase the hours of existing employees. The factthat hours worked are stagnant strongly suggests lack of demand is the problem.

When business talks about uncertainty, they refer to the uncertainty surroundingdemand for their products. Some have wrongly interpreted uncertainty to be aboutregulation or costs. No Demand. No Hiring.

Reply August 24, 2010 at 09:18 PMRobert said in reply to Marton H...That's very true. Economists seem to think that structural unemployment is entirelyabout mismatch. What if jobs are simply being eliminated entirely? This has certainlybeen happening in manufacturing. The US is still the world leader in manufacturingoutput; we just don't have the jobs because manufacturing has automated.Globalization can have nearly the same impact as technology, especially in cases likeservice offshoring.

Check out this book: The Lights in the Tunnel: Automation, Accelerating Technologyand the Economy of the Future. (Free PDF at http://www.thelightsinthetunnel.com)

This book explains what economists seem not to understand. The impact thus far maybe difficult to detect, but I think in the future it will become very obvious. Almost everysector will be hit heavily in the future.

Reply August 24, 2010 at 10:11 PMSora said in reply to Robert...Structural unemployment isn't about anything other than mismatch. Jobs can't be"eliminated entirely" because of trade. Workers are simultaneously consumers, so aneconomy of all consumers and no workers is impossible. But as workers are laid off,they should find other jobs for which they are suited.

The core question here is whether those former employers are temporarily cutting back

10/23/10 5:49 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 6 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

and will re-hire when the economy resumes growth or if workers are being forced tofind new jobs that require re-training or a different education.

Sorry to say, but your opinion is rubbish. It doesn't lead anywhere, except eitherSmoot-Hawley tariffs or killing off millions of foreign workers. I hope you don't wanteither of those things.

Reply August 24, 2010 at 10:36 PMRobert said in reply to Sora...You are definitely correct that workers are also consumers and an economy of allconsumers and no workers is impossible. But that does not in any way imply thatpeople have to find jobs. It just means that as jobs are automated and offshored,consumer spending will decline and the economy will enter a death spiral. In thatsituation the incentive is for businesses to automate or offshore even more...everythingbecomes about cutting costs as revenue stagnates or declines. And that is exactly whatcorporations are doing now. Profits have been generally good this past quarter.

You are assuming that if workers retrain there will be jobs for them. That is notnecessarily true.

As long as companies can make more money by hiring offshore or automatingcompletely they are not going to hire US workers. They are not going to hire USworkers just because we need consumers. That is true systemically, but it has nothingto do with the incentives that individual businesses see.

Reply August 25, 2010 at 12:38 AMJohn said in reply to Sora...Trade also has a redistributive effect. If I took a dollar out of your pocket and gave it toa billionaire, the net effect would be a reduction of demand since that billionaire isn'tgoing to have an abundance of investment opportunities right now. You can certainlyargue that some trade has a beneficial and not malign redistributive effect, but not alltrade does.

Additionally the trade deficit is currently rising, which has the effect of depressingaggregate demand and reducing employment.

In the long run, trade isn't going to eliminate jobs, but you know what they say aboutthe long run. And in the short run, cyclical unemployment has a nasty way of turningstructural.

That's not to say that trade is actually causing our problems. Personally, I doubt thatit's more then a modest drag due to the trade deficit. But your out of hand dismissal ofhis argument seemed to be assuming, rather then demonstrating, that trade isbeneficial.

Reply August 25, 2010 at 12:47 AMtrotsky said...I notice that you offered the Internet as a job-growth sector without offering specificnumbers. Do they exist? Are you sure?

I was going to say I don't doubt it it's true -- but on second thought I might. Thosepublishing and broadcasting jobs that have been lost (ex-Internet, you write) aren'tnecessarily being replaced by Internet jobs -- not on a one-to-one basis anyway.Hardware and networking guys will always do OK, but the HuffPo's reported revenueis about that of a single small-town newspaper circa 2006.

Reply August 25, 2010 at 01:09 AM

10/23/10 5:49 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 7 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

Nick R said...Marton H.'s technology argument aside, another explanation for structuralunemployment relates to basic human psychology. Yoga instructors may see theirbusiness booming but they may be reluctant to hire because of uncertainty aboutfuture costs of doing business. Behavorial economic studies suggest that losses aretwice as powerful, psychologically, as gains. Loss aversion prevents the "invisible hand"from efficiently reallocating workers. But here's the rub: The more that yoga instructorsrefuse to expand, the more they will fear the costs of governmental intervention tocontinually prop up the barristas. The state of long-term expectation continually falls.Continual Keynesian spending amidst zero bound interest rates serves -- via a self-reinforcing negative dynamic -- to ossify cyclical unemployment into its morepernicious structural form. I believe this dynamic accounts for the sad state of thedeveloped world's private sector, and its equity markets, today.

Nick RKyoto, Japan

Reply August 25, 2010 at 01:17 AMNate said...@Nick R:It's hard to tell what you're saying, but if you're making the argument I think you'remaking, I don't agree. If I've said it once I've said it a hundred times. Go talk to somebusiness owners and see if any of them are making decisions based on fears about thegovernment's costs leading to higher future tax rates. Beyond those in industries likecoal that may have specific reasons to believe they will be subject to particularlyonerous regulation in the future, I doubt any are.

Reply August 25, 2010 at 05:34 AMsave_the_rustbelt said...The former tool-and-die maker who has been selling fishing licenses at Wal-Mart for adozen years is the structural underemployment, that the problem arrived slowly doesnot mean it is not a problem.

Reply August 25, 2010 at 05:43 AMsave_the_rustbelt said...The policy elite have two positions on health care.

1. Health care as a percentage of GDP must be reduced.

2. Displaced workers will be retrained for health care.

Does this mean a vast army of poorly paid health care workers? Or just a lack ofthought?

Reply August 25, 2010 at 05:44 AMC. said...Must factor in global sourcing, and recognize that outsourcing is on the rise forprofessional jobs, not just unskilled manufacturing.

The unemployment crisis in developed countries will only be solved by changing howcorporations source their people. How, I do not know.

Business process outsourcing (BPO) and information technology (IT) outsourcing hasmoved large numbers of higher-income, middle-class jobs overseas. These are jobsrequiring college degrees and specialized knowledge. A large number of lower salary,foreign workers are also imported via the visa program.

10/23/10 5:49 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 8 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

ALERT Media and Government: Consumers will NOT be spending, since our jobscontinue to be outsourced. Tired of hearing the question, why are consumers notspending? Also, why are employers not hiring? Employers ARE hiring overseas.

Foreign governments want our corporations to employ their people, our consumers tobuy their exports, but free market capitalism ends there.

When only a MINORITY of corporations are outsourcing middle-class jobs, thosecorporations appear to prosper and be more competitive.

When the MAJORITY of corporations are outsourcing middle-class jobs, capitalismdestroys itself from a spiraling of demand for ALL products.

If a middle-class does grow in developing countries, trade barriers will be prohibitivefor corporations who want to sell into those markets.

Our corporations are destroying demand for their own products and services with thecost-savings strategies of layoffs and outsourcing.

Corporations are effectively destroying demand for their products and services by"firing" their good customers and "hiring" poor customers.

Our downward economic spiral - the more corporations outsource jobs, the lower thedemand for their products.

Reply August 25, 2010 at 07:08 AMDrDick said in reply to Omega Centauri..."I think we may be undergoing a transition to a different economy."

True. A third world economy, which is what our managerial and rentier classes want.

Reply August 25, 2010 at 07:24 AMJeffrey Davis said...Obviously we need to build pyramids. Real pyramids.

Reply August 25, 2010 at 08:26 AMGraydon said..."You get what you reward" is one of those describes-systems things that is obviouslytrue, but hard to use.

"You get what your system produces" -- more usually, "the purpose of a system is whatit does" (rather than what you think it ought to be doing, or was intended to do) -- islike that, too, easy to see how it's true, hard to see what to do with it, but permit me topoint out that in this case you don't look at the things you don't want, you look at thesystem.

_As a matter of policy_ (not, alas, as a matter of politics) there's a pretty trivial fix forthe whole mess; forbid profit maximization on the part of any form of economicorganization.

There are a ton of existing, long-term, well-understood mechanisms to organize groupsof people for purposes of economic activity that don't require profit maximization; therequirement for profit maximization in publicly traded corporations (in the US; theCanadian requirement, for example, is for the directors of the corporation to act "in thecorporation's best interest" which is not at all the same thing) was added in, and couldbe taken back out. (Though that would not be enough, not after the last 40 years.)

There's a need for capital, but there's absolutely no need for a capitalist _class_; thedrive to wealth concentration and profit maximization is unquestionably part of the

10/23/10 5:49 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 9 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

problem. (For one thing, it makes it tough to create all the modest-profit businessesthat would employ local people.)

That's what the fight is about; the existence of the capitalist class harms everybodyelse, and that class wants to keep existing. But it can only exist in a system thatpermits wealth concentration and profit-maximizing behavior, and those are easyenough things to get rid of and everybody else will be better off when you do.

You get to keep a free market; you can compete on things like delivered value andcustomer satisfaction (compare the behavior towards passengers of publicly-tradedand privately held airlines, sometime) instead of profit maximization.

This is a really, really easy fix. You just have to be able to think of it as a possibility.

Reply August 25, 2010 at 08:27 AMOmega Centauri said..." A third world economy, which is what our managerial and rentier classes want."I'm by nature extremely skeptical of conspiracy theories as an explanation for why acountry gets onto the wrong track. A simpler expanation is widespread tunnel vision.Very few give a thought to systemic effects, but nearly everyone is cognizant of the waythey are affected. And most of the systemic thinking is ideological rather than analytic.

Reply August 25, 2010 at 08:36 AMC. said...We must have governmental labor laws and policies that take into account theglobalization of the workforce.

A simple solution might be to require corporations to match workforce percentages ineach country to their revenue percentage coming from those countries.

Reply August 25, 2010 at 09:07 AMBernard Yomtov said in reply to Marton H...Others have mentioned increased espressoo machine and wii production, but I thinkthere is something else.

Presumably yoga lessons and espressos become cheaper - why else automate? Soeither:

A. Consumers buy more of one or both, driving employment back up

or

B. Consumers find other places to spend the money saved, and this stimulatesemployment in another sector.

or

C. Consumers just save the money, causing a downturn with the results and policyresponses that have been much discussed here and eslewhere.

Reply August 25, 2010 at 10:14 AMchris said...This argument forgets to consider what was happening before the recession started. Ifmanufacturing employment was declining before the recession, then the recessionarydeclines may be a bit faster than trend, but this is not an industry that is in cyclicaldecline. It is an industry in structural decline.

Moreover, I think people struggle with the definitions of cyclical and structural.Consider the construction industry. Suppose (since we are in the Berkley spirit ofhypthesizing) that we are 100% certain that the construction indsutry grew at a rate

10/23/10 5:49 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 10 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

from 2005-2007 that was unsustainable (i.e. a bubble). Then this industry must comeback down into a reasonable range. This means reduced output and reducedemployment. Now, is this cyclical, or structural? Doesn't that depend on why theindustry overheated? If, as some argue, government policies misallocated resources tothis industry, then a proper correction results in a structural change to the industry(the industry does not return to the unsustainable levels). Or, if the ramp up inconstruction was some kind of irrational exuberance on the part of housing consumers(some may say speculation), then isn't this more of the cyclical variety?

And really, in either case, does it matter what label we use? Well, it does matter whatlabel we use if the label is shorthand for: Can government AD support fix this?

Reply August 25, 2010 at 10:58 AMbrian.lim.ca@gmail.com said...Thank you. This analysis is of great help to someone like me that will read about"recalculation" or reallocation on other blogs and just nod, perhaps in agreement, butprobably more because we find it plausible that some reallocation is necessary. Iappreciate now that there's a huge difference between accepting that *some*reallocation is necessary and understanding whether that is the main problem.

Reply August 25, 2010 at 01:09 PMDrDick said in reply to Omega Centauri..."I'm by nature extremely skeptical of conspiracy theories as an explanation for why acountry gets onto the wrong track."

That was rather simplistic and snarky on my part. I do not believe that there is anyactual conspiracy and would agree that it is generally ideologically driven systemicthinking which has caused this mess. Our economic elites, whom I referenced, wantcheap labor, cheap resources (unless they are resource producers), ever increasingprofits (essentially impossible in finite markets) and wealth for themselves, noregulation of businesses, and low or no taxes on themselves. The inevitable result ofthis, if they are successful, is a third world economy.

Reply August 25, 2010 at 04:11 PMOmega Centauri said in reply to DrDick..." DrDick said in reply to Omega Centauri.."Bingo, we are on the same wavelength entirely.I suspect the end point is not like present 3rd world economies, but more like a feudalsystem. And if we surveyed the last few thousand years of human civilization, isn't thatthe predominate system? System evolution wise it must be a very attractive endpoint,as so many civilizations have gone there, and the mean residence time in that state islong.

Reply August 25, 2010 at 08:09 PMGene O'Grady said...Since I have a (currently former) barista in the family, may I just say that the notion insome comments that espresso machines eliminate barista jobs simply shows a lack ofunderstanding of what baristas do.

Reply August 25, 2010 at 08:14 PMDrDick said in reply to Omega Centauri...They are very attractive for elites (everyone else, not so much), which is why theyoccur so widely. I suspect it would be some sort of hybrid between traditional feudalsocieties and the quasi-feudal structure of many contemporary third world countries. Itis only through essentially revolutionary action (violent or otherwise) that such

10/23/10 5:50 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 11 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

outcomes can be prevented or overcome. I sadly see no appetite in the country todayfor such action.

Reply August 25, 2010 at 08:25 PMLyle said...Given that we are undergoing the second period of a major sector of the economy interms of employment imploding in the US the first being the Ag sector. At that timeManufacturing was able to take up the slack, but as noted tech now means fewer moreskilled jobs in manufacturing. For example if the wages in Pakistan get high enoughand no low wage countries are left, I suspect that its possible to build a machine to sewclothes. (We of course have the actual sewing being done by machine now, but this isthe moving of the work and its positioning with respect to the needle.) In one sensethen the unemployment is at a higher level structural, in that the goods and servicesdesired by the society do not take all its workers to provide. Rome by living on thesurplus from the rest of the empire provided bread and circuses for the Roman mob. However note the interesting article on Yahoo on the shortage of plumbers electriciansand the like world wide :http://finance.yahoo.com/news/Lack-of-skilled-workers-rb-1457929627.html?x=0This implies that the world wide push for all to get a college education has resulted in ashortage of the trades, which of course are looked down on, but without whom wewould have a much worse life. The shortage of skilled trades is a factor in 6 of the top10 economies, as well as 10 of 16 European countries. Now there may well be to manynew construction only plumbers and electricians, but the folks who repair and renovatecontinue to have demand for their services.

Reply August 25, 2010 at 09:15 PMJ said in reply to DrDick...Surely minds well trained in comparative advantage must understand theconsequences of the dramatic disparity in mobility between Capital and Labor. Nationssolved this problem, briefly, through concessions exacted by the legislative pressure ofDemocratically elected governments. This is easily subverted through dollardenominated speech and newer, transnational levels of mobility. With transnationalsoffering up the intellectual capital in exchange for market access, even knowledge laborsuffers the same. The only thing moving is the money.

Reply August 25, 2010 at 09:57 PMNeal said...To continue the view that the US economy is a "closed loop" is contrary to fact.

There are all sorts of jobs out there, but it would be a matter of relocating to a differentplace, different language, different working conditions, benefits and pay.

It's a global economy.

How that squares with the desires of the US worker is an entirely different matter.

Reply August 26, 2010 at 04:55 AMPaul Yarbles said in reply to Neal..."It's a global economy."

Yeah, yeah yeah... but statements such as this shouldn't give anyone the impressionthat the current global economic setup is a fact of nature. Remember economics is nota science. Even if it does dress up in mathematical fineries.

Sometimes when people try to push the idea that ephemeral economic structures andrelationships are akin to universal physical properties what they really want is for

10/23/10 5:50 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 12 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

workers to except their shitty lot and start working more and more for their richmasters. To them this is the real meaning of the ownership society.

"How that squares with the desires of the US worker is an entirely different matter."

With good propaganda creating the belief that economics is just like physics maybe thedesires of the US worker can be put more into alignment with the desires of theexecutives and owners. At least, this seems to be the hope of some.

Reply August 26, 2010 at 07:05 AMchristofay said...A question for academic economists, when do we start calling it a depression ratherthan the great recession?

Reply August 26, 2010 at 08:07 AMBrad DeLong said...nemployment hit 12%, or stays above 10% for more than two years...

Reply August 26, 2010 at 08:20 AMchristofay said...What is the point here? You want change, but you support the elite of a failedindustrial policy, the Rubinistas, the lot of them, Rubins, Greenspam (oh the maestroand his magic beans interest rate cuts), Bernanke, Geithner, Summers, and perhaps theschool of economicism, what's called American Keynesian. You can't have change whenthese failures have their hands on the levers of power.

Reply August 26, 2010 at 08:20 AMMcwop said...Almost all the unemployment is tied to the collapse in real estate. Builders, financiers,and suppliers to those areas. It is not coming back anytime soon either.

Reply August 26, 2010 at 08:48 AMPeter K. said..."Almost all the unemployment is tied to the collapse in real estate. Builders, financiers,and suppliers to those areas. It is not coming back anytime soon either."

Anonymous comment fail. So many lies and liars. In 2007 there was demand in manysectors that is no longer there in 2010. Once it comes back business will hire. Thegovernment needs to do some more pump-priming to get demand into a virtuous circleonce more.

Reply August 26, 2010 at 09:25 AMGraydon said...An _actual_ feudal system -- one characterized by social relationships created byformal binding oaths between nominal equals, automatic class mobility based onlegally set economic criteria, what was effectively a progressive tax system with taxesset by class and with taxes on the military/noble classes proportionately highest, andformal, explicit obligations of service (with strong penalties for failure) applying toeveryone with the franchise -- would be an excellent thing.

I believe what y'all are talking about is some combination of god-king autocracy and astrong aristocracy not subject to the rule of law. Those are certainly bad things, butthey don't last; they can't innovate and cultures better to innovate stomp on them,given time. Given very little time in an industrializing world with really bad climateproblems facing it, probably not even into fully generational time scales.

Reply August 26, 2010 at 09:35 AM

10/23/10 5:50 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 13 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

urban legend said in reply to Marton H...You think the automation and technological progress explains a precipitous drop inless than two years? I think you need a change of lenses through which you viewreality.

Reply August 26, 2010 at 09:36 AMNeal said...What were the characteristics of the jobs during the housing boom? They were tied to aspecific US geographic location(negating off-shoring), they were labor intensive(negating automation), there was a high degree of customization with each project(negating off-shoring and automation). These characteristic were typical of everyonesboom job from the developer, to the agent, to the contractor, to the mortgage seller,etc., etc..

The localized, custom nature of the work (which, oddly enough, is the same in thehealth care field) provided US jobs in the face of the effects of globalization, off-shoring, automation and computerization. The collapse of the boom exposed the USworkforce to the full force of the gale of those changes. Two successive booms hadforestalled the need to deal with those effects, that is why the collapse of the housingmarket brought us so quickly to the point of where we are at. We are having to dealwith several decades of change that the previous booms had shielded us from--that iswhy the decline is so severe and apparently intractable at this point.

That is why significant changes are required. We ARE a part of the global economicsystem where we do have to make a choice to consciously withdraw or adapt to thatglobal system. Or is there a third way?

That is the question for the economists who are concerned with the future of the USworker.

Reply August 26, 2010 at 11:06 AMGraydon said...urban legend --

If, desperate to cut costs/save money, a critical mass of corporates has, or is in theprocess of, tipping over into a state of having decided to trust the automation, yeah, wecould be having just this drop in these particular two years.

Good automation increases productivity by multiples of two or three while at the sametime making it necessary to be much more picky about who you have doing the work.(Because you've concentrated all the work into the stuff you need an alert human beingwith appropriate training to do; people who aren't into working hard all day becomeobviously problematic once the automation is in place.)

So this is, if we're seeing a general spread of good automation (we're not; the rate atwhich good automation spreads is fundamentally constrained by the availability ofpeople who understand how to set it up, and that's still a rare skill set) much too*small* an unemployment spike.

If what we're seeing is a combination of ruthless demands for crushing overwork, adrive to cut costs by removing over-40s from the work force, and badly implementedbut still returning modest (below 50%) productivity increases automation, theunemployment spike is going to both get bigger over time and be extremely persistent,which isn't inconsistent with what we're currently seeing.

Reply August 26, 2010 at 11:07 AMNeil Bates said...

10/23/10 5:50 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 14 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

I wish I'd gotten here earlier, in any case: how about forcing a "share economy" bymaking corporations pay out lots in wages regardless of whether they could get awaywith paying less, e.g. by tax fiat (like deductible multiplier for cost of labor and reducerfor other expenses) then they effectively can't save money by paying people less. I'dadd not allowing deduction for wages paid to other than US citizen.

BTW, if most consumers have less money then wouldn't the production just shift towhat the rich want? Unfortunately, I don't see how that problem will get in the way ofincreasing wealth disparity. And to think, the loony, ignorant, and easily distracted USpopulace is charmed by the tealiban and nuts like Angle, pressing for even worsedestruction of their lot.

Reply August 26, 2010 at 01:20 PMC. said...There may be too much focus on automation as a factor here. I believe that automationin manufacturing played a larger role in the 1950's, 60's, and 70's when manufacturingwas a larger part of our economy. In the last decade, white-collar business people,many with college degrees, have been reduced due to efficiencies in computerinformation systems, as well as the outsourcing of the related business processes.These are staff positions in accounting, finance, human resources, informationtechnology, administration, procurement, etc.

I see this as the commoditization of work, not necessarily work that has beenautomated. For example, when most of the Fortune 100 is using the SAP software fortheir internal business processes, those business processes are no longer differentiatedfrom one company to another. Therefore, the workers become commodities whereneither knowledge nor creativity are valued.

Reply August 26, 2010 at 05:13 PMBill Murray said in reply to Paul Yarbles...Also, it's not like labor can just up and move to where the jobs are if the jobs leave thecountry. Most countries frown on this sort of thing

Reply August 26, 2010 at 05:20 PMC. said...What would happen if our government and/or consumer groups provided incentives orestablished labor policies for corporations to match workforce percentages in eachcountry to their revenue percentage coming from those countries? Therefore, humanresource utilization would more closely match the demand for goods and services ineach country. Many multi-nationals, such as IBM, Caterpillar, GM, and Toyota, havealready moved in this direction. Therefore, Americans can buy Toyotas made byAmerican workers, and Chinese can buy GM cars made in China.

Reply August 26, 2010 at 05:50 PMNathanael said in reply to Robert..." Robert said in reply to Sora..."

"You are definitely correct that workers are also consumers and an economy of allconsumers and no workers is impossible. But that does not in any way imply thatpeople have to find jobs. It just means that as jobs are automated and offshored,consumer spending will decline and the economy will enter a death spiral."

OK, but the logical conclusion from that is that there simply won't be enough jobs foreveryone to work.... but there will be plenty of wealth, thanks to all our robot factoriesmanufacturing valuable goods at minimal cost. Which means we should just give stuff

10/23/10 5:50 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 15 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

away for free.

Or in other words, the government should send large checks to everyone every year, fordoing absolutely nothing, and *that* will revive the economy.

You have a rather good argument for that. Do you advocate that? I'm all for it. ;-)

Reply August 26, 2010 at 06:32 PMNathanael said in reply to Brad DeLong..."Brad DeLong said, defining when we call it a Depression...

Unemployment hit 12%, or stays above 10% for more than two years..."

U3, or U6? The long-term unemployed mean U3 "hits a wall" at a certain point whendkispirited people stop looking for jobs in the formal economy (they may still look forwork to get food, but they don't look in a way which the unemployment officerecognizes).

Reply August 26, 2010 at 06:35 PMRichard H. Serlin said...Let's hear the opinion of the person who has the most power to act on this today, BenBernanke.

This is from his 2008 Macroeconomic text (with Andrew Abel and Dean Croushore):

It seems clear that increased mismatches between workers and jobs can't account forall the increase in unemployment that occurs during recessions. Much of that increaseis in the form of temporary layoffs; rather than search for new jobs, many workers whoare temporarily laid off simply wait until they are called back by their old firm.Moreover, if recessions were times of increased mismatch in the labor market, morepostings of vacancies and help wanted ads during recessions would be expected; infact, both vacancies and new job openings fall in recessions. (page 376)

Of course Bernanke today seems to be not acting in accordance with many of his paststated opinions.

Reply August 27, 2010 at 01:41 AMC. said in reply to Richard H. Serlin...I read somewhere that only about 25% of the current unemployment was related tomanufacturing jobs lost. Temporary layoffs, where workers may be called back by theirold firms, only seem to occur in blue-collar manufacturing situations. Mostprofessional white-collar layoffs in business are permanent, where the workers mightreapply for positions later, but that is not the norm.

I've also heard people discussing how the housing and construction collapse caused thecurrent unemployment situation. They don't seem to take into account that many ofthe construction workers were illegals or temporaries and many have already returnedto their native countries.

I guess, I would caution economists against applying textbook theories that may onlyfit a 1950's style economy.

Reply August 27, 2010 at 06:34 AMComments on this post are closed.

10/23/10 5:50 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 16 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

Me: Economists:

PaulKrugmanMark ThomaCowen andTabarrokChinn andHamiltonBrad Setser

Juicebox

Mafia:

Ezra KleinMatthewYglesiasSpencerAckermanDanaGoldsteinDanFroomkin

Moral

Philosophers:

Hilzoy andFriendsCrookedTimber ofHumanityMarkKleiman andFriendsEricRauchwayand FriendsJohn Holboand Friends

Everyone Suffers From the Foreclosure MessThe Atlantic - Oct 15, 2010She may or may not have been the first major economics blogger, depending onwhether we are allowed to throw outlying variables such as Brad Delong out of ...Related Articles » « Previous Next »

economics DeLong

10/23/10 5:50 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 17 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html

10/23/10 5:50 PMIdentifying Cyclical vs. Structural Unemployment: A Guide for Slate Writers - Grasping Reality with Both Hands

Page 18 of 18http://delong.typepad.com/sdj/2010/08/identifying-cyclical-vs-structural-unemployment-a-guide-for-slate-writers.html