I’m seeing more and more pieces like this one, in which pundits look at stubbornly high unemployment and declare that it must be structural — something we just have to live with, or at least something that will take long-term policies (translation — someone else’s problem) rather than mere stimulus, to correct.
Bah humbug. Actually, worse than that, because this kind of fatalism corrodes whatever will we might have to actually deal with our problems.
Why is unemployment remaining high? Because growth is weak — period, full stop, end of story. Historically, low or negative growth has meant rising unemployment, fast growth falling unemployment (Okun’s Law). Here’s a scatterplot of quarterly data since 1948, with pre-Great Recession observations in blue and observations since 2008 in red:
St. Louis FedThe relationship is a bit noisy, as economic relationships generally are — and what we’ve been seeing lately is well within the normal range of noise. There’s no hint in these data that we’ve entered new territory in which decent growth fails to create jobs; the problem is that we haven’t had decent growth.
And if we had a structural unemployment problem, we’d be seeing labor shortages and rising wages. We aren’t: wages actually fell last month.
So what’s with the rush to declare our problems structural, not amenable to easy solution?
Partly, that’s what always happens — it’s what happened during the Great Depression.
But I’d add a second factor: the truth about our slump — that we know how to fix it, that we could fix it in a year if we had the political will, but that bad ideas and worse politicians are standing in the way — makes people uncomfortable. They want to believe that we have a deep problem, and that’s why we’re in such a mess.
The truth is that the fault lies not in our structure, but in ourselves.