Fixing Unemployment

“You’re hired.”

Nobody seems to be saying that phrase much these days, judging from the unemployment rate – and not to mention the drubbing lots of politicians are going to take next week.

Getting down to the root cause of the stubbornly high unemployment rates on the national, state and local levels has produced an interesting debate among academics and economists.

To wit: is the persistent joblessness because the nation has a structural unemployment problem? Or because of a widespread lack of consumer demand.

If it’s the former, that would mean the main driver of the unemployment rate is a mismatch between job skills and available jobs. Maybe lots of construction workers are out of a job, and the only jobs open at construction firms are, I don’t know, in HR or some highly skilled area.

If it’s the latter, then the main driver of unemployment is lots and lots of consumers too scared about the future to buy anything they don’t absolutely need. When consumers aren’t buying, companies lose money, don’t need as many workers, and so on.

Figuring out which of those two possibilities is the right one has everything to do with getting the nation back on track. Because depending on which one you think it is, it requires a very different response.

If we have some kind of structural unemployment problem, the recovery can’t really be sped up. The economy and the private sector would only recover slowly, bit by bit, as problems as slowly wrung out of the system.

No easy answers, and years to solve that problem.

If the answer is the latter and widespread lack of demand is behind all this, that suggests a robust government response might do some good.

A financial advisor who works in Memphis told me the answer was absolutely, positively, the former. That the nation has a structural unemployment problem.

Is he right?

Dansette

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