Troubling Terms of Unemployment

Troubling Terms of Unemployment

Jargon has its uses, in economics and many other fields.

After all, it would be difficult and also time-consuming to translate everything into plain language all the time.

But, that said, sometimes jargon gets in the way of communication.

This is clearly the case with the term “structural unemployment,” which has been tossed around a lot lately by some economists and politicians in the United States. Unemployment that is primarily structural describes a mismatch between the skills workers have and the skills required for the jobs available — that is, unemployment that can’t be cured by increasing demand for goods and services.

I have explained before that macroeconomists look at inflation rates in order to distinguish between slumps brought on by lack of supply and those brought on by lack of demand. Stagflation (rising unemployment combined with accelerating inflation) is the signature of a supply shock; unemployment combined with disinflation is the signature of a demand shock. And guess which one the United States is experiencing.

There is often a story that explains structural unemployment. Maybe workers are living in the wrong locations. Or it might happen because unemployed workers do not have the required technical knowledge for jobs, or whatever else.

The measure of structural unemployment is that worsening of the inflation-unemployment tradeoff. So, for example, we know that Britain suffered a large rise in structural unemployment in the late 1970s through the 1980s partly because of the way inflation took off in the late 1980s, even though the unemployment rate was quite high by historical standards. Back then, the south and east were doing well but the north and west were deeply depressed. Also, declines in major industries — steel, coal, shipbuilding — were coupled with rises in the service and financial sectors.

Times were terrible for blue-collar workers, but not so bad for white-collar workers.

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That is not the case in the United States today. Where’s the evidence of a structural rise in unemployment? There are no large groups of workers with rising wages; there are no large parts of the labor force at full employment, and there are no full-employment states, aside from Nebraska and the Dakotas. And inflation is falling, not rising.

Clearly, in contrast to what you may have heard, the United States is not facing an inflationary obstacle — if you look for evidence, there is none to be found. What the economy needs is more demand; provide that, and you’ll be amazed at how many willing, productive workers there are, currently sitting idle.

© 2010 The New York Times Company

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Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.

Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including “The Return of Depression Economics” (2008) and “The Conscience of a Liberal” (2007).
Copyright 2010 The New York Times.