Structural Unemployment

It’s a basic tenet of economics that economies tend to return to full employment following the temporary disruptions of recessions.  But, as reported in the linked Reuters article, economists are beginning to worry about “structural unemployment” – high levels of unemployment that will persist even after an economic “recovery.” 

Millions of American job-hunters risk permanent unemployment as industries undergo radical change and some skills become irrelevant in the wake of the worst U.S. economic recession in 70 years.There are troubling signs that unemployment in the United States is taking on a structural dimension, though the extent of it may not become clear until the severe downturn that started in December 2007 finally ends, analysts said.

Structural unemployment has been gathering steam for decades, as the out-bound container ships that appeared to be returning empty to China, Japan, Germany and Korea were instead actually loaded with American jobs.  So where were these analysts and economists as all this was going on?  They were busy manning the brooms, sweeping the unemployment issue under rugs and transforming the American economy into a two-legged stool, teetering on the housing and services sectors while the manufacturing sector was steadily sawed away. 

It worked for a while, as housing and retail were juiced with credit, made possible by lax or non-existent lending standards.  But once everyone’s bank accounts were drained dry, the stool tipped and the whole system collapsed. 

“The figures reflect the fact that some of the jobs lost are probably lost for good and highlight that unemployment is rising more because of structural changes in the economy than in past recessions,” said Tony Crescenzi, strategist and portfolio manager at Pimco in Newport Beach, California.

The jobs aren’t “lost for good.”  They were carried overseas on ships floating on a sea of flawed trade policy.  If we just open our markets to these enormous populations, the jobs we provide them can prime the pump of their economies and they’ll soon be buying as much from us as we buy from them, it was assumed.  Well, it didn’t prime the pump.  Those jobs were poured down a rat hole.  We didn’t understand that those densely populated economies, instead of being fertile grounds for exports, were merely vast labor forces desperate for employment.  There’s not enough export market there because their over-crowding makes it impossible for them to consume at anywhere near the level required to absorb their own domestic productive capacity, let alone imports from the U.S.  And worsening over-crowding here in America, stoked by immigration, is making matters worse.

But not understanding this, economists grasp at straws to explain this new phenomenon of structural unemployment:

“That does make one to wonder about long-term unemployment, what you might call structural unemployment,” said Heather Boushey, senior economist at the Center for American Progress.

… Annual vehicle sales have dropped from a peak of nearly 17 million vehicles in 2005, while housing starts have fallen from an annual rate of around 2.3 million units in January 2006.

… Analysts reckon vehicle sales and new home construction will probably not return to those lofty levels, meaning that workers laid off from these sectors have a slim chance of getting their jobs back.

… “That means there is excess capacity of millions in terms of what could be produced. The jobs lost there might be lost for good because we won’t get back to 16 or 17 million car sales in a very long time,” said Pimco’s Crescenzi.

The logic is that people will stay unemployed because they don’t have enough income to buy things.  They don’t have enough income because they’re unemployed.  When will economists stop chasing their tails and consider the possibility that they’re over-looking something?  Perhaps people are unemployed because per capita consumption is declining while productivity is rising.  Perhaps such effects can actually be imported through free trade.  Perhaps population growth is a poor crutch for economic growth.  Perhaps, economists, closing your minds to the ramifications of population growth wasn’t such a hot idea after all. 

Structural unemployment is real, rooted in the extreme population densities found throughout Asia and much of Europe.  It is the responsibility of these nations to address the cause of their structural unemployment.  It is not our responsibility to import it.

3 Responses to Structural Unemployment

  1. Mark A. Hall says:


    Recently, our local GE production facility announced that they would be hiring 90 production workers at a starting wage of about $13.00 per hour.

    They had 10,000 people apply for these 90 positions.

    • Pete Murphy says:

      Mark, what do they make there?

      With 10,000 applicants for 90 jobs, no wonder they’re only offering $13.00 per hour. We see the same kind of thing playing out all the time here in Southeast Michigan.

      • Mark Hall says:


        It is a G.E. appliance park (diswashers, wash machines, refrigerators etc.). I wish it was jet engines etc.

        The $13.00 per hour was the result of severe labor labor concessions to keep the park open. At one time back in the early 80’s this park had more than 10,000 production workers. Now, it only has about 2,000.

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