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!

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The Printed Book is Dead, Long Live the E-book...Right? Wrong!

Panorama of Matera

The death of the printed book? That and other portentous matters were discussed at the WFF in Matera (Italy) last week (23-26 September 2010). WFF? Sounds good and very international... some kind of new United Nations agency?

No, nothing as boring as that. WFF is the Women's Fiction Festival, a meeting of writers, editors, publishers and literary agents from the US, UK and Italy (not to mention bloggers and journalists). Now in its seventh year, it has achieved the enviable status of "BEST writers' meeting in continental Europe", drawing such heavy weights as Man Booker Prize finalist Simon Mawer with his extraordinary The Glass Room and Eileen Dreyer, New York Times best selling author and winner of numerous awards in not one but three completely different genres (medical thrillers, fantasy and historicals).

But it doesn't stop there. WFF is not limited to English speakers. It has drawn publishers from Italy, Germany and Holland and some important Italian writers, such as Licia Troisi, the immensely successful young author of three fantasy trilogies that have sold across the world (Germany, France, Russia etc) who also happens to be...an astrophysicist, currently working on her Ph.D. And Enrica Bonaccorti, a writer, actress and TV personality who came to present her latest novel, L'uomo immobile, a harrowing story about a man immobilized after a car accident. WFF has also helped considerably in discovering and promoting new authors, such as Gabriella Genisi, Cristina Obber and Alessandra Oddi Baglioni.

All this thanks to the dynamism and organizational genius of a very special lady, Elisabeth Jennings, who started life as a translator and has become a successful published writer in her own right. Having followed her husband to Matera, she decided that this was the perfect place for a writers' conference, particularly one focussed on romance writers. A wild bet, yet how right she proved to be! With its extraordinary location over a canyon and filled with stone-age houses, it certainly is a uniquely romantic town in Europe - not to be missed should you visit Italy. And Liz Jennings has managed to involve the local authorities and national sponsors such as the publisher Harlequin Mondadori, all to create a remarkably well organized festival, including good food, music, fireworks and excellent simultaneous English-Italian translation. Bravo to Liz and her team!

With this stellar cast, you can easily imagine that the discussions were lively - the public was composed not only of aspiring writers but many already successfully published, including those from the English Writers in Italy,a group formed in 2006 bringing together all English and American authors living in Italy. Topics ranged far and wide, from fine points in how to do forensic or historical research to the changing role of literary agents in the United States and Europe as e-publishing is fast taking a hold.

For that was the really HOT TOPIC: e-publishing. A published writer and expert in digital publishing, Charles Jones told us that, the way he saw it, the advent of the e-book did not spell the death knell of publishing. He saw it as a golden opportunity for aspiring writers.


Actually, for the moment, things don't look good at all: traditional publishers are in a panic, laying off staff - particularly editors - and fighting with Amazon.com over their "business model" (i.e. their cut). As a fallback position, they have chosen to publish authors with a "platform" (i.e. people with a strong following because they are celebrities or key professionals in their field) rather than debut authors. Better safe than sorry seems to be their motto. More the pity, because literature, like any human endeavour, needs new blood to go forward. Newspapers aren't doing any better, cutting back on their book reviews - most notably the New York Times. The only major American paper that has  decided to go counter trend is the Wall Street Journal: it is coming out these days with a new book review section. We'll see how it goes, but, as I said, most major actors on the publishing scene are feeling gloomy.

I wonder why. To my mind, e-books cannot replace the printed version. It's just another distribution channel, and a highly effective one. It is able (unlike the printed word) to reach out to the most distant and isolated areas of our planet. E-readers are fabulous portable libraries - and since we have all become travellers, they are the only comfortable way to carry novels on the plane or to the beach. And you can read whenever you are stuck somewhere - in traffic, queuing up at the post office, waiting for the doctor. If you drive, you can use the audio version and listen to your favorite novel.

In short, reading opportunities are multipled. E-books don't reduce the book market, they EXPAND it! It is odd that such a simple notion hasn't occurred to traditional publishers - nor even to Amazon.com who's at the heart of it with its Kindle. Because if the market is an expanding one, then the pricing strategy should be changed to take that fact into account.What Amazon should do (and other librairies too) is to offer prices that are structurally linked: whomever has bought an e-book should be able to get the printed version at a discount and vice-versa. That way, you'd be riding the tiger of an expanding market. I've had the experience of really liking a book in economics that I had bought for reading on my Kindle, and being discouraged from buying the printed version by the price. It was galling to have to pay for it all over again.

Yet, for a certain type of book, you really do want the printed version. To use as a reference, as something to share with your friends, as an object to put on your shelf at home. For all these things, an e-book doesn't work and the printed version is irreplaceable. Why can't publishers understand this? Their business is not threatened, far from it, it's expanding. People have NEVER read so much as they do now: Americans are up to reading on average a whopping 22,000 words a day and spending 11.8 hours a day absorbing all kinds of written information. 22,000 words a day! It makes one dream (remember novels average 80 to 100,000 words). Why should such a small portion of it be allocated to novels? It's all a question of marketing and adjusting to the digital age!

As the Italians say: coraggio!
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The Illegal Immigrants Conundrum: Is French Expulsion of the Roms a Solution?

A Polish Romani womanImage via Wikipedia
Nicolas Sarkozy, intent on reviving his support on the right, has launched France into a busy summer of bulldozing down illegal Roma encampments. A prize of  €300 (close to $400) was offered to those who left voluntarily and, of course, the flight home was paid for.

So far, this summer,  it has cost the French Treasury some €300 million to deport 1,700 Roms back to their countries of origin, Romania and Bulgaria. That compares with an average of 8,000 Roms deported every year since 2008 - annual deportation averaged only 2,000 before the European Union was enlarged to include Romania and Bulgaria, the countries with the largest Rom populations in Europe.

Are 1,700 or even 8,000 persons per year a lot of people?

Hardly, considering that France has between 350,000 and 500,000 Roms - but most with a French passport.

So if it's only a trickle, why does it matter?

Because of the way the French government is doing it.  First,  it is rushing through the dismantling of encampments and creating havoc. Second, it claims its action is based on checking out the dates on the Roms' entry visas. Yes, as citizens of Romania and Bulgaria, the newest entrants to the EU, these particular Roms need a visa and it has limited validity. That should change in 2014, when those restrictions - whose legality is not entirely clear and may be in contradiction with a 2004 EU Directive - will come to an end.

What is new - and interesting -  in the process is that the French Government has for the first time agreed with Romania and Bulgaria to finance programmes for Roms' reinsertion at home. Something the European Union had promised those countries when they acceded to the Union in 2007, but has never done to the extent promised.

Actually the problem of Roma integration is particularly acute in other countries in Europe: the Czech Republic and Slovaka within the Union and Serbia outside (but trying to get in). Not to mention Spain, Italy etc.
Until recently, the French procedure seemed to be on track and offered what looked like a promising new way to deal with the immigrant problem that is plaguing Western Europe. It was (is) based on three elements:
(1) eject only those who are illegal,
(2) give them a money reward if they cooperate, and
(3) work out with their home countries a system to reintegrate them at home, thus (hopefully) discouraging their return.

Unfortunately last week, the procedure hit a major snag. An official French Government circular was uncovered by Le Monde and other newspapers that made for juicy stuff: the circular specifically named the Roma as those to be expelled as a matter of priority. That smelled of ethnic cleansing and there was the expected uproar on the Left everywhere in Europe. With the vote we saw in the European Parliament.  The French government instantly withdrew the circular but matters took a turn for the worse when Viviane Reding, the EU Justice Commissioner, unjudiciously likened the French Roma expulsion to Nazi deportation. Ms. Reding's rabid declaration gave Nicolas Sarkozy a golden opportunity to mount his white horse in Brussels and shoot everyone down. Unfortunately he made public a private conversation he had with Angela Merkel, the German Chancellor, saying that Germany would embark on a similar policy of Roma expulsion - we shall never know what they said to each other but, as might be expected given the German sensitivity to comparisons with Nazi policies, they immediately denied Germany had any intention to dismantle the Roma camps.

In this silly flap over what the French are really doing to the Roms, there is a tendency to lose sight of two basic questions: one is the right of EU citizens to move freely across borders within the European Union. This important point was brought to the attention of the EU commission in a very interesting report, dated 1 September 2010 (here is the link: The Situation of Roma in France and in Europe - Information Note). The other is how to solve the problem of Roma poverty and emargination. A galling issue that affects some 7 to 10  million people across Europe (yes, that's how large the problem is!)

No one argues against the right of free movement for EU citizens: it is part and parcel of what it means to belong to the EU. And of course, least of all the French Government who contends that it is only deporting illegal immigrants. Perhaps they are and we shall leave the EU Commission to figure that one out.
What worries me more is the long-term problem of Roma poverty. As long as they are poor and uneducated, they cannot be integrated in our society. This is exactly the kind of problem we face in developing countries: poverty, emargination, lack of education, lack of job opportunities, lack of housing, lack of sanitation and health care, lack of everything. I rather liked the offer of the French Government to finance programmes of reinsertion of the Roma in their country of origin. But what is the content of these programmes? How long will they last? How much funding?

I bet not enough. Never enough and not long enough either.

Reinsertion of the Roms is basically a long-run development problem.That means it should be treated as such, with the proper means and dedication, using everything we have learned so far in development aid and what makes it work. Guiding principles like an "integrated approach", "giving voice to the beneficiaries", allowing "appropriation of the programme objectives by the recipient population" etc etc. We do know how to make it work after 60 years of aid in the Third World (yeah, with many failures and mistakes, but we've learned how to do it, how to avoid the worst pitfalls...)

Can't we do the same for the poor in our own countries? And can't we extend poverty eradication programmes to ALL the poor within the EU borders, regardless of whether they are Roms or not? Isn't high time we really, really paid attention to the problem of income inequality and poverty?
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Unemployment, a Misunderstood Beast and How to Fight it

Icon of Wind TurbinesImage via Wikipedia
Obama has just announced a 50 billion dollar programme to fight unemployment, and Barroso has immediately followed suit in a speech to the European Parliament, calling for a bond programme to finance big construction projects. Infrastructure is "key to the recovery". What they're both talking about is really the old Keynesian recipe of throwing funds on big infrastructure project to kick start the economy.

Kick start? A big word. It might help the construction industry but it won't go very much further than that.

Why not? Because this recession may not be a double-dipped one but it is nevertheless a DEEP one. Unemployment is not just the result of fiscal or monetary policy flaws (nor can it be corrected with such tools). The main thing to understand is that a very large portion of it is STRUCTURAL and it has preceded the Big Recession.

Let me note in passing that even if jobs were to become suddenly plentiful in the construction industry, that would still leave out scores of people unable to find a job, even though they have university degrees. For that's the latest (and most disturbing) dimension of unemployment: high tech industries in the United States are no longer hiring. Engineers who have been laid off in this recession cannot find another job in their specialty. They find themselves "left behind" and there aren't enough new graduates to fill the vacancies
For manufacturing however, the problem has been going on for decades now. So from where, from what sector will recovery come? Fifty billion dollars sound like a lot but actually they aren't - think of how big the TARP was...750 billions to save Wall Street from itself. As to Barroso's proposal, it's not likely to go anywhere: who's going to float bonds, tied to which projects and who's going to buy these bonds?

Of course, Obama hasn't stopped at infrastructure. He's also talking (quite rightly) about education, research and clean energy - all excellent targets for measures aimed at boosting the recovery. He is pushing for $200 billion in tax breaks for businesses investing in new facilities and equipment and a $100 billion extension to a research-and-development business tax credit. All this however is likely to take TIME before showing results. So the recovery is certainly not for tomorrow morning.

In the meantime, the Chinese have forged ahead with extensive support for their clean energy industry - production of solar panels and wind turbines - taking advantage of the fact that (a) they blithely disregard WTO rules regarding government subsidies to export industries (they are prohibited) and give their traders all the help they need, (b) they manipulate currency exchanges to ensure that the renmimbi doesn't rise unduly, and (c) they are the only ones mining the rare earths needed for solar panels and other advanced technology products. Small wonder that they have become the world's number one producer and trader in solar technology! And small wonder that the recovery is booming along in China!

So what should we do? I would propose we approach the problem of unemployment as clinically as one approaches the problem of under-development in the Third World, i.e. as follows:
(1) we accept that the problem is structural and we don't hide behind unrealistic economic models (some economists still don't, see Mr. Blanchard's report for the IMF): in other words, jobs need to be created in new industries to balance out the jobs lost in established manufacturing and high tech industries;
(2) we adopt a policy for searching and identifying these new jobs. That means combing through research results in all sectors, looking for innovations that can readily be turned into active projects, the shorter the road from innovation to application the better.
(3) To implement this policy, we set up a commission or some sort of institution bringing together, sector by sector, researchers and businessmen, both venture capitalists and business managers with a long experience in the sector, plus of course, marketing experts capable of quickly assessing potential demand. Their task would be to come up with a series of quickly do-able projects.
(4) We set up public-private partnerships to encourage investment into the said "do-able projects" - starting first with pilot experiments that could be financed wholly by the public sector, in the case the private sector investors are shy and dragging their feet. It's in those pilot experiments that the Government would have a real role to play, to jump start the process...

I guess what I'm suggesting is a NEW STRATEGY to fight unemployment - one that would mobilize the best in the private sector, venture capitalists and business managers and marketeers, and give an ice-breaking role to the Government. If new experiments fail, it would not be at the expense of private business but if, and whenever they succeed, it would reinforce the concept of a State at the service of its citizens. Which is the proper role of the State.

How does it sound to you? Let me know...All ideas welcome!
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