The Unassuming Economist

In an article for the Atlantic, Frederick Hess of the American Enterprise Institute links the problem of structural unemployment with the lack of quality job training/workforce development. He writes “economist Prakash Loungani of the International Monetary Fund has estimated that 25 percent of the unemployed are out of work today due to skill-job mismatches. Georgetown’s Harry Holzer has calculated that today’s unemployment rate of 9.1 percent would be nearer to 8 percent if a majority of these jobs were filled (…) Fact is, America’s community colleges, job training, and workforce development are a mess. Community colleges suck up nearly $36 billion in taxpayer subsidies to provide training of uncertain quality, retain a balky and inconvenient academic calendar, and frequently do a lousy job of linking their instruction to local workforce needs (…) it can be hard for workers seeking retraining to find convenient, cost-effective, high-quality options (..) Absent high-quality retraining, it’s easy for workers in dying industries to get stuck, for their skills to atrophy, and for their networks and work habits to erode.”

In an article on structural unemployment, Robert Samuelson writes that “one puzzle of this somber economy is the existence of unfilled jobs in the midst of mass unemployment. You might think (I did) that with almost 14 million Americans unemployed — and nearly half those for more than six months — companies could fill almost any opening quickly. Not so. Somehow, there’s a mismatch between idle workers and open jobs. Economist Prakash Loungani of the IMF estimates that 25% of unemployment is structural; that’s more than 3 million jobs.” Read the full article at the Washington Post.

The Woodrow Wilson International Center for Scholars hosted a forum to give a grade to the U.S. policy response to the financial crisis. My presentation was on the unemployment crisis.

America’s current unemployment crisis is predominately the result of a pronounced dip in the business cycle, according to a new paper by economists at the International Monetary Fund. But, structural factors, like shortages of highly-skilled laborers, is keeping the jobless rate high, too, the paper finds. Read the rest of Huffington Post’s story.

My new paper on cyclical and structural sources of unemployment provides cross-country evidence on the relative importance of cyclical and structural factors in explaining unemployment, including the sharp rise in U.S. long-term unemployment during the Great Recession of 2007-09. About 75% of the forecast error variance of unemployment is accounted for by cyclical factors-real GDP changes (?Okun‘s Law?), monetary and fiscal policies, and the uncertainty effects emphasized by Bloom (2009). Structural factors, which we measure using the dispersion of industry-level stock returns, account for the remaining 25 percent. For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.