If you look at the historical unemployment rate in the United States, you will observe two things:
- The current unemployment rate of 9.1% is not unprecedented. The early 80s, for instance, marked a period in which over 10% of Americans were without work; and
- The unemployment rate oscillates up and down, and has historically retreated after periods in which it was high.
These facts mitigate the concerns of some who worry that the current high unemployment rate is the new norm. They correctly point out that historically as some domestic sectors have matured and stabilized (i.e. manufacturing) that others (the services and knowledge-based industries, for instance) have taken their place as people have adapted to the changes in demand within the labour market through training and education. And while this is true, I would argue that the interplay of demographic trends and increasing global interconnectedness suggests that not only is there a high likelihood that the current unemployment rate is the new norm, but that it has the potential to grow much higher before it retreats. Let me explain.
One of the key drivers of globalization has been the increasing interconnectedness of previously disparate economies through trade of products and labour. This has enabled large multinational corporations to lower their manufacturing costs, which they have by-and-large passed on to consumers in the form of more affordable goods. These savings have spurred innovation and granted us the comfortable lifestyle we possess that has made us the envy of the developing world. But it has also had a profoundly negative side effect if you're an American living in the Rust Belt or Midwest: it has meant the outsourcing of hundreds of thousands (if not millions) of manufacturing jobs to lower tax, cheaper jurisdictions from areas whose residents do not possess significant other skills or trades that they can monetize to maintain their quality of lives. This consequence would not be as significant if it was the only variable at play here. As the numbers will tell you, people have adapted to such changes in the past so the question is why can't they now? The answer lies in changing demographics.
The median age of Americans is higher today than it has ever been, and this is primarily attributed to the fact that Americans are having less children than in decades of past due to a number of reasons outside the scope of this entry. What this means, however, is that people are older, and, generally speaking, the older you are the less likely you are to possess the opportunity, time or aptitude to seek training in a different field or to return to school. (There are obviously other factors at play as well, which I don't mean to make light of such as: the higher cost of goods and services; the higher cost of post-secondary education; the fact that as one ages, the costs of maintaining their health increases, which reduces disposable income set aside for education or training; family pressures that preclude adults from taking time away from the labour market to upgrade their skills; and so on.) That residents in areas where there has been a flight of industry do not possess the aggregate skills to attract service or knowledge-based companies has further compounded the problem, and led to the problematic proposition in which people are out of work not because they voluntarily abstain from participation but because their skills do not match the demands of the labour market, a phenomenon otherwise known as Structural Unemployment. Call me a cynic but I do not foresee how this problem is going to be addressed through policy in the short or long term. The US government is not in a position to provide subsidies to incentivise companies to set up shop in Ohio, for instance, and the local populace does not possess the means or opportunities to attain employment in other sectors. Social Assistance is not a viable option for a heavily indebted government. Moreover, as globalization and competitive forces increase we can reasonably expect more blue collar jobs to leave advanced economies such as that of the US or Canada with no reprieve in sight.
In short, we have a problem in which people want to work but do not have the skills required to do so, and there's very little that government can do about it.
Please share your thoughts.
2 comments:
This argument only holds water in the extreme short term (< 5 years). The problem will be mitigated by a combination of factors: People leaving the workforce (retirement, attrition (i.e. discouragement), death), geographic redistribution of populations and skills re-training. The major weakness in the article is due to one major factor: a myopic view-point that compares metrics that have different time horizons / cycles. The unemployment rate is a lagging indicator that has systemic flaws in the way it is measured. The UR says very little about what is happening 'now' or about the types of jobs that are available. It does not tell a story. Structural unemployment could only arise when there are materially more workers than jobs available over a sustained period of time - It would be hard to argue that this is the case even in the medium term. The unemployment situation right now is a problem of asymmetry. What you are currently seeing is a demographic bubble skewing the UR in the short-to-medium term. Geographic shifts of population and re-training take place over a longer time horizon than what the UR is able to capture. So while you see these short/medium term volatile trends on both a demographic and geographic scale, the medium term outlook is for the business cycle to do what it does best, and oscillate.
@Yoda
Thanks for the comment. Here's the problem with your line of thinking:
1. While people will eventually leave the workforce (if for no other reason than death), the fact that they are currently unemployed and maybe even drawing from their retirement savings (if any) means that they will remain in the work force much longer.
2. Geographic redistribution is much more difficult to do for the middle-aged folk that lost their manufacturing jobs. They're more likely to have families that incentivize them to remain where they are, and the lack of means translates into less mobility. We also do not see the exodus from the Midwest you're suggesting might happen.
3. Re-training is less likely to happen amongst the middle-aged, and, again, it requires funding, which these individuals don't have.
All this adds up to is more reliance on social assistance to make ends meet. I'm not sure how what you suggested will pose to change this trend in the short or long term, I'm afraid.
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