The danger of structural unemployment

imo-blogPoliticians are going to great lengths to avoid talking about the real effect of structural unemployment that we are now facing. This oblivious attitude, this constant pointing to the sliver of sunlight on dark and dreary days, is not only wishful thinking but destructive.

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Oregon and the nation at large are currently in the midst of the worst bout of prolonged unemployment since the Great Depression. Any period of time where you have large, languishing populations of people suffering daily is cause for serious concern. Large levels of unemployment affect growth, tax revenues, community confidence, self worth, and these are mild results. If you take a worldview, large-scale rioting and rebellion from London to Kabul all share one thing in common: young unemployed men in large numbers.

Yet, in these troubling times, employers are complaining about how they do not have enough workers. Simultaneously, people are out searching frantically for a job. But, the skills of the available labor do not necessarily transfer over to the searching employer. We call this kind of unemployment “structural unemployment.”

Most people are at least familiar with the term structural unemployment. But what exactly does it mean? The standard definition is that it is a matching issue between a certain segment of Labor supply, and the demand for that Labor. Typically this occurs when there has been a technological change, but no such change has taken place. This is not the automation or computing revolutions, this is the result of a financial policy that made credit too accessible, therefore housing too plentiful.

To illustrate, we should dive a bit into the numbers. In February 2007 in Oregon there were 22,922 people employed in private sector building construction, only a year later there were 17,685 people employed. Now what happened to the nearly 6,000 laborers? They didn’t all die, or leave the state. So what did they do? Well, what could they do? And therein lays the main issue with this recovery: You can’t be a construction worker today, and be a solar panel installer tomorrow. Even if the skills are similar there is some learning curve that will be a serious barrier to entry.  That is the essence of structural unemployment: groups of people whose skill sets are essentially useless. Useless because of a market structure that no longer demands their services.

What people are not talking about, what public leaders seem to go to great lengths to avoid saying is what the effect of structural economic shifts can mean. If a large portion of the population is no longer employable because their skill sets are no longer in demand, then that group will not find employment in that field. Basically, that it won’t ever be the same, that this is a permanent unyielding change. That is how you have prolonged unemployment among active job seekers, when people operate under an assumed return to “normalcy.” At its core, prolonged unemployment is the result of retraining difficulty, and an attitude towards future employment.

This oblivious attitude, this constant pointing to the sliver of sunlight on dark and dreary days, is not only wishful thinking but destructive. By misleading people into thinking that housing will return to its peak, or even worse by talking up logging growth to timber counties that would be ecstatic to have an 8% unemployment level in good years, our leaders do us a greater disservice in denial.

This deception will only prolong the grueling experience that so many Oregonians live with daily. Here’s a dirty little secret that doesn’t make the nightly news: This is going to continue for a while. The sooner we are more honest with ourselves and take strong, decisive action to rectify our unemployment issues, the sooner we can bring unemployment levels down.

Ben Price has a degree in economics from Oregon State University.