It's Structural and It's Cyclical

Is unemployment a problem that money can solve?

That's the question I asked in our latest policy explainer FLASHCARD on the argument over cyclical vs. structural unemployment. My conclusion was that our massive unemployment crisis was the product of both low demand for goods (cyclical) and changing demand for goods (structural). Samuelson grabs the baton and keeps the argument running:

But the fact that most of today's unemployment is cyclical doesn't rule out structural joblessness. The longer people are out of work, the harder it is to find a new job. People loose workplace contacts; some skills atrophy or vanish, because they were tied to a specific company or a fading technology; potential employers are skeptical of applicants who are long-term jobless (about 40 percent of the unemployed have been jobless for more than six months). Slightly more than half the unemployed are 35 and over (almost 5 million are 45 and over). They may face age discrimination or, unable to sell their homes, can't easily move to find work.

So, persisting cyclical unemployment feeds structural unemployment. The gap between rising job openings and stubborn unemployment may be one of those statistical puzzles that economists can't unravel--or it may have a simple, common sense explanation. It could be that, in a weak economy, employers become more picky and cautious. They may advertise a job just to see who applies. Or they won't hire anyone except an exceptionally qualified candidate. Or they won't hire until they're certain that their sales justify more workers. Some reported job "openings" may be phantom.

All this means that the debate over economic "stimulus," though that term has fallen into disfavor, won't vanish. With budget deficits already high and interest rates already low, what more the government can do is unclear. Greater "infrastructure" spending is the latest political fashion.

Read the full story at Newsweek.