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As I noted in a previous post, economists define three types of unemployment: frictional, structural, and cyclical:
Frictional unemployment is defined as the unemployment that occurs because of people moving or changing occupations. Demographic change can also play a role in this type of unemployment since young or first-time workers tend to have higher-than-normal turnover rates as they settle into a long-term occupation. An important distinguishing feature of this type of unemployment, unlike the two that follow it, is that it is voluntary on the part of the worker.
Structural unemployment is defined as unemployment arising from technical change such as automation, or from changes in the composition of output due to variations in the types of products people demand. For example, a decline in the demand for typewriters would lead to structurally unemployed workers in the typewriter industry.
Cyclical unemployment is defined as workers losing their jobs due to business cycle fluctuations in output, i.e. the normal up and down movements in the economy as it cycles through booms and recessions over time.
In a recession, frictional unemployment tends to drop since people become afraid of quitting the job they have due to the poor chances of finding another one. People that already have another job lined up will still be willing to change jobs, though there will be fewer of them since new jobs are harder to find. However, they aren’t counted as part of the unemployed. Thus, the fall in frictional unemployment is mainly due to a fall in people quitting voluntarily before they have another job lined up.
But the drop in frictional unemployment is relatively small and more than offset by increases in cyclical and structural unemployment. One of the big questions right now is whether the US economy is suffering, for the most part, from structural or cyclical unemployment. If it’s cyclical, then there’s a good chance that government intervention can help. If it’s structural, i.e. a decline in automobile production and manufacturing more generally, a decline in home construction, and a decline in the financial industry all of which free workers that need to be absorbed elsewhere in the economy, there’s less that can be done and some do not think that government can do much at all about this type of problem (though as I note below, I disagree). Thus, the debate is between those who say our current unemployment problem is largely cyclical and hence we need more government action, and those who say it’s structural and hence there’s very little that government can do. We will just have to wait for the structural changes to take place, and that takes time.
I don’t think this debate can be answered by moving close to the polar extremes and declaring it’s mainly a structural or cyclical problem. For me, it seems obvious that part of the problem is structural. The real question is how large the structural component is and what can be done about it. But no matter how large it is — take a very liberal estimate of the size — I don’t think there’s any way to deny that there is a substantial cyclical component on top of it that demands government action. It’s true that the size of the government action to offset the the cyclical downturn should be connected to the size of the cyclical unemployment problem, but the problem is big enough that politicians won’t come anywhere near to overdoing it. The most optimistic view of what Congress might do would still leave them short of what is needed. We don’t know the exact structural-cyclical breakdown, but the cyclical problem is certainly larger than any imaginable Congressional response. So the excuse for inaction based upon the “it’s all structural” claim isn’t persuasive.
What about the structural problem, does government have any role to play, or does it have to rely upon the private sector to solve this problem by itself? Several points on this. First, even if the problem is mostly structural, the government can still provide people with jobs to bridge the gap until the structural changes are complete. To me, this is better than simply extending unemployment compensation since it allows individuals to contribute something (e.g. work on a project the local community needs). And by giving people jobs, or at least government aid through unemployment compensation, we increase aggregate demand and the that helps firms to do better and speeds the transition.
Second, government can ease the structural problem by making it easier for businesses and individuals to relocate. People are understandably reluctant to leave the place they have lived for years and years, but government incentives to relocate (tax breaks, subsidies, etc.), can help. So can efforts to provide individuals in communities suffering from high unemployment with information about where job prospects are better, as can retraining programs (though these aren’t always as effective as hoped). In a deep, widespread recession places that need workers may be hard to find, but not always and knowing where there are better opportunities for employment can be helpful. Businesses can also be induced to relocate through tax and other incentives, though the tax competition that accomplishes this may strip local governments of needed tax revenue, so I’d prefer these programs originate at the federal level. And there can also be government encouragements to speed the investments that are needed to complete the transition.
But the main things I want to emphasize are that no matter how large the structural problem is, cyclical unemployment is also a big problem, so the claim that government is powerless because it’s all structural doesn’t hold. And the claim that the existence of a structural problem means there’s nothing the government can do is also incorrect. If nothing else, the government can help workers during the transition. In addition, though the opportunities here are more limited, there are also things the government can do to make the transition happen sooner rather than later.
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Doc at the Radar Station
"Thus, the debate is between those who say our current unemployment problem is largely cyclical and hence we need more government action, and those who say it?s structural and hence there?s very little that government can do. We will just have to wait for the structural changes to take place, and that takes time."Shouldn't there be another definition that is a subset to structural.... caused by imports?http://www.doleta.gov/tradeact/Is there any research that looks at structural UE and breaks it down to its various components?
hejiang317414
Professor:I agree with your point : government should use different methods corresponding different kinds of unemployment. However, I think you ignore an important point that the effect of easing unemployment depends on the government?s fiscal restraint and efficiency.I think the reason that unemployment has been still serious is US government's tight fiscal restraint.It is suggested that short-term?s serious unemployment problem is inevitable.Moreover, whether it will become a long-term problem mainly depends on policies' direction and efficiency.Let me see!hejiang
Objectivist1
If the government were awash in money, then maybe government-driven employment would be helpful (but even here, my bias is the opposite of yours: there's plenty of data to suggest that each government-created job crowds out two private sector jobs -- good politically, bad economically).But what's happening now is that the government is converting cyclical unemployment into structural unemployment by burdening current and future generations with an obscene pile of debt. And with the government piling on new anti-growth regulations, the structural barriers grow ever larger.
stevensedlmayr
I think we need a different definition, or even subset, of structural. This is because of a long term and short term structural adjustment. For instance, the move from agricultural society to a manufacturing society. We have moved from a manufacturing society to a paper society. That is the real problem that has been brewing for years. It just takes a long time to turn a ship, or a long time for an elephant to know that it is dead, but it keeps moving ahead because of its momentum. While I am a tech guy, I lamented when we declared we had moved from a manufacturing society to a information age society. That is when I knew we were in for great problems. The problem with an information society is that when technology becomes more efficient, the need for human workers becomes less. This is one of the reasons that we started out sourcing jobs, and just became middleman for trading goods, and accounting for them. This then caused the middle and lower classes to become unemployed in larger numbers, and as a result, the needs for good would drop as less people can afford it, and this in turn causes the economy to shrink. It will eventually effect all of our resources, including our research and development, new products, and eventually our society, including our national defense. What is needed is to recognize that we must manufacture our own goods and energy. We must not rely upon foreign interests to make our products, and utulize our own human resources to manufacture products, thus increasing our ability to purchase goods, which in turn helps our growth. We need to invest in our research, innovation, invention, development, and manufacturing for ourselves. I know, I am an inventor, but have had to license my technology overseas to live and feed my family, as nobody wanted it here, especially the large corps and the government. Yet is has lead to employing thousands of people overseas and billions of dollars in revenue for the companies that licensed it. Here we have software that allows people to interact socially and play games, but the end user is benefited by this in job employment. We make the microprocessors here for the desktop and laptop computers, but the computers themselves are made overseas with most of the other components. We buy foreign electronics (HDTVS, large screen tvs, computer screens, radios, stereos, etc) but none of it is made here, but was invented here. But we can track the buying and selling of it very well. We need to wake up and realize that national defense is more than just beating other nations into submission with our superior armament (for now) and also entails the manufacturing and making of our own products.
niubi911
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JimRicker
This is silliness masquerading as scholarly work. When any government removes money from the economy, siphons off a large portion of it for government workers (who are paid with tax dollars removed from the economy) and then gives only some of it to the private sector (mainly to friends and other friendlies they wish to use other people's money to support) it has a negative effect on the economy.When that same government is not using real money today but is borrowing oodles of it from the future (and adding it onto the already bursting at the seams government debt), this creates even more of a shortage down the road because the overnment must take even more from the private sector in order to pay the debts accumulated (and it always costs more when the payments are deferred) it drags down the private sector even greater.This type of thinking is the same type of empty theoretical wishful thinking flowing from our good friends who follow Maynard's theory - which ahs been shown to eb an abject failure.Best Regards,Jim
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Mark Thoma is a macroeconomist and time-series econometrician at the University of Oregon. His research focuses on how monetary policy affects the economy, and he has also worked on political business cycle models and models of transportation dynamics. Mark blogs daily at Economist's View.
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