CBO Counters Liberals: There Is Some Structural Unemployment

Liberal economists don't want to hear about structural unemployment -- the idea that there is a fundamental mismatch of unused labor skills and employer needs -- because they're worried conservatives will use it as an excuse to argue against stimulus spending. After all, the purpose of stimulus to recover aggregate demand. But if demand for certain kinds of workers -- say, elevator men or exurban townhouse residential architects -- is structurally deficient, the money will go to waste.

Now that it's fairly clear we're not getting any more stimulus spending, can we acknowledge the likelihood that the housing bubble's burst has created a glut of real estate-related workers, and that this glut constitutes structural unemployment?

CBO chief Doug Elmendorf makes a reasonable case:

Regarding structural changes, the end of the housing boom and the recession have induced a reshuffling of jobs among businesses, occupations, industries, and geographical areas. Those developments suggest that gains in employment in the next several years will rely more than usual on the creation of new jobs--with different businesses, in different industries and locations, and requiring workers with different skills than those needed for the jobs that have disappeared. As a result, the movement of unemployed workers into new jobs will probably be more difficult in this recovery than in past ones.

See the graph below? It's a ratio of construction jobs to total population that suggests the fall in construction labor in this recession has been pretty normal. That shouldn't be the case. This was a very abnormal recession for real estate because it was a historic downturn concentrated in real estate-centric local economies. Construction jobs have fallen about a fifth from December 2007, and this graph suggests they still have some way to fall.

More government efforts to prop up the housing market are the equivalent of batting a deflated balloon in the air. You're not discovering an antidote to gravity. You're only delaying the inevitable meeting between balloon and floor. That's not an argument against broader stimulus measures, but it is a fair warning that there are some problems in the economy that more money cannot fix right away, if at all.

Construction Jobs to Pop 2010-06 v2.GIF

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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