Are We Stuck With High Unemployment Forever?

As Congress debates a handful of job saving provisions, from a public schools rescue fund to tax cuts for small businesses, Martin Ford wonders if it's all utterly hopeless. What if technology and the recession have conspired to give us high and persistent unemployment ... forever!

It's an interesting but hyperbolic argument. Ford writes:

"If jobs at all levels are destined to evaporate in the face of broad-based automation, radical intervention -- and perhaps even a fundamental rewiring of the way the economy works -- may ultimately be our only alternative. Mainstream economists are, of course, completely oblivious to such a potential scenario."

I guess that makes me "oblivious," too. Massive technological change has already affected jobs in just about every conceivable industry for the last few decades. What industry doesn't use computers or robots, or interact with products built by machines? I can't name one. (Commenters, answer!) Yet, in 2007 our unemployment rate averaged 4.6 percent, lower than any time between 1975 and 1998. Automation destroys jobs and creates cheaper products, freeing up capital for investments in other fields. But there's no reason to think that technology has changed enough in the last three years so that 5 or 6 percent unemployment is suddenly relegated to the dark realm of unicorns and bipartisanship.

While I reject the idea that technology will only lead to permanently higher levels of unemployment, it's certainly possible that deep structural changes in the workforce as a result of technology make it more difficult for our economy to recover from bouts of unemployment. In other words, rapid technological change doesn't make high unemployment permanent, it makes high unemployment sticky.

Check out this graph of job recoveries following recessions.

job losses as of march 10.png
There have been eleven recessions since WWII. The four longest recoveries for the jobs market were also the four most recent: after 1981, after 1990, after 2001 and (inevitably) after the current downturn. Are jobless recoveries the new normal?

The Cleveland Fed said, maybe. In the past three recessions, workers stayed unemployed much longer once they lost their job. One reason why it's getting harder for laid off workers to find new work is that technology is sweeping through their old companies, destroying their old jobs forever. It takes time for the economy to recalibrate. Another compounding factor is that the long-term unemployed experience diminishing skills and face resistance among employers when they choose to re-enter the labor force. What's more, the rise of part-time and independent workers as a major swath of the public creates a shadow work force that isn't counted by (or protected by) the government.

In short, technology exacerbates jobless recoveries. That doesn't mean it will create a permanent class of joblessness.