There Is No 'Structural' Unemployment Problem; A look at the skills-jobs mismatch finds no evidence that changes in the economy explain high joblessness. The problem is slow growth.
The unemployment rate has exceeded 8% for more than three years. This has lead some commentators and policy makers to speculate that there has been a fundamental change in the labor market. The view is that today's economy cannot support unemployment rates below 5%--like the levels that prevailed before the recession and in the late 1990s. Those in government may take some comfort in this view. It lowers expectations and provides a rationale for the dismal labor market.</br></br>Excuses aside, this issue is also important for central banks. The Federal Reserve and other central banks have some policy choices to make if the high rates of unemployment reflect cyclic phenomena. But if the problem is structural--perhaps reflecting a mismatch between skills needed by business and skills possessed by the unemployed--there is little the Fed can do.</br></br>Research I've done with James Spletzer of the U.S. Census Bureau shows that the problems in the labor market are not structural. They reflect slow economic growth, and the cure is a decent recovery.</br></br>In 2007, the unemployment rate was 4.4%. Two years later, it reached 10%. The structure of a modern economy does not change that quickly. The demographic composition of the labor force, its educational breakdown and even the industrial mix did not differ much between 2007 and 2009.</br></br>More specifically, from 2007 to 2009 unemployment grew dramatically in a few industries, and these changes contributed to the rise in overall unemployment. But the changes were similar to those experienced in prior recessions. As unemployment rates declined somewhat after 2009, the pattern played out in reverse. Industries that saw the largest increases in unemployment were the ones with the largest decreases as overall unemployment fell.