Monday, May 13, 2013

I had a friendly discussion...

...with my brother recently about the stubbornly high rate of unemployment in America. (Click here for a larger view of the above chart.)

My brother maintained that the economy was suffering from "structural" unemployment, i. e., workers lack the necessary skills needed for all the existing job openings, or they may simply have to relocate to that part of the country where jobs are available.

I, of course, referred to Paul Krugman, who claims that the problem isn't "structural" at all, but rather a lack of demand in the economy and that fiscal and monetary policy should be acting to provide the missing demand.

I recalled that Krugman wrote in one of his posts that on the eve of World War II (my emphasis): the US began its military buildup and demand increased as a result, employment rose by 20 percent — the equivalent of adding 26 million jobs today.

In his blog today, Ezra Klein linked to the graph above which shows the ratio of job seekers to available jobs. In December, 2000, shortly after the Internet bubble burst, the ratio was 1.1-to-1. In July, 2009, after the stock market had bottomed out in March of that year, the ratio was 6.7-to-1. And now that the economy is on the mend, the ratio has improved to 3.1-to-1.

So, tell me, did all those workers have the right job skills in 2000, lose them until 2009, and then get them back again? Is that drop since 2009 the result of retraining? That's hard for me to believe.

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