Is Structural Unemployment a Bad Joke?

U.S. Job Seekers Exceed Openings by Record Ratio

I can't believe it! One of my favourite economists  let me down last week. I'm speaking of Paul Krugman, one of the best columnists on the New York Times, a Nobel Prize in Economics in 2008, someone who's remarkable in every way.

Read the article I attached below. It's unbelievable, I tell you!  He just did himself in - that is, of course, in my humble opinion. He went for every conventional wisdom in the book. What a pity!

Yet I fully support his basic message - it makes a lot of sense: it is URGENT that governments tackle the problem of unemployment. For as I've said before in an earlier post, this is truly the BIGGEST problem we are facing NOW. But to tackle unemployment, we have to know what kind of beast it is. And it's not just a disease linked to the business cycle and a lack of demand, as Krugman (and most economists with him) would have it. Sure, it is that too, but it is ALSO a structural disease - something much deeper, like cancer. And like that dread disease, it's been lurking in the background, half-hidden from view, for a long time now - in my view, for at least the past 30 or 40 years .  And this time around, with the Great Recession, it has made cyclical unemployment - the one caused by a crash in demand - much, much worse. And longer lasting. And harder to get out of.

Anyone with kids fresh out of college, with their brand new university degree under the arm, will tell you that structural unemployment is no figment of the imagination.

It exists, and how!

Back in the fabled '60s when I graduated, it was easy to get a job. I immediately started with First National City Bank (as it was called in those days) and went on to a big publisher at the time, Harper & Row. Since then, they've both changed name and capital assets, and I've moved on to greener pastures in Europe. But I never had any trouble finding a job, my Columbia University degree always acting as a wonderful passport into the job market. But contrary winds started to blow in the 1970s when the price of petrol quadrupled and the boom years based on cheap energy came to an end. Things picked up with the Internet/personal computer revolution in the 1980s, but that too petered out, after 9/11 and the collapse of the Twin Towers in New York (btw, no correlation intended and none exists!). The result? Young people  in the West, trained the way I was, no longer easily breeze into the job market. They have to work at it hard and learn to wait patiently for an opening.

And the same fate befalls quite a few graduates from developing countries who can't find a job at home and take the immigration route.

And it's not just a problem of the young. See the picture above! People seeking jobs are 6 times as many as the job openings in the US. And it's just as bad in some European countries, if not worse (see Spain or Ireland). If you've worked your whole life and you're forty or fifty years old, it's not just an unemployment problem, it's a nightmare.

So this is the long-standing problem that needs to be addressed. Krugman is right in one thing at least: the way governments say they are going to tackle structural unemployment is next-to-useless. It is practically an excuse for inaction. They always talk about (and sometimes invest in) programmes to recycle/train people in new skills or in updating their old skills. As if that was the whole answer to structural unemployment.  It is that too, but it is much, MUCH MORE. 

As I've said before, it requires an integrated approach similar to the one used by the World Bank and other major players in the development community - from the United Nations Development Programme to technical agencies and major Non-Governmental Organizations such as Oxfam or CARE. It is a well-tested approach - it's been in use for the past 40 years and is predicated on four essential steps:
(1) evaluate first the state of research to identify opportunities for quick innovation;
(2) set up lead institutions to guide investment and/or establish public-private partnerships to finance innovative, lead projects;
(3) test them out with small, short pilot projects and finance the best ones, those with the highest returns and easiest to duplicate;
(4) train people for the new projects: that is when training people to update their skills or give them new ones come into play. It's the last step in the process.

For you don't just train people in anything they don't happen to know just for the pleasure of it. People receiving training need an assurance that at the end of what is always a big effort - especially for adults who've been out of school for a long time- it will pay off in terms of a new, well-paid secure job. So everything has to be done first (see the first above-mentioned 3 steps) BEFORE embarking on a training programme.

What is needed is a concerted effort from every vital element in society - from the research people in universities and private laboratories to venture capitalists to public servants in the state treasury and finance. 

And to suggest that structural unemployment doesn't exist is a very, very bad joke...That kind of argument won't get us anywhere!

Enhanced by Zemanta