Main cause of US unemployment?

[pdmunro]

I have just read the news report below from the WSJ. I'm interested to know from your anecdotal evidence, what is the cause of the high US jobless figures?

 

WSJ ECONOMY SEPTEMBER 4, 2010.

Behind Stimulus Argument, Debate on Causes of Joblessness Grows

 

By JON HILSENRATH

Washington's response to the country's stubbornly high unemployment will depend in part on who wins an increasingly intense debate over its causes.

 

One side says more government spending to stimulate the economy can reduce joblessness. The other says it can't.

 

At the root of the debate is an argument over whether the fundamental structure of the economy has changed. Doubters say unemployment is high because of structural problems, such as people who can't move to take new jobs because they are tied down to burdensome mortgages or firms that can't find workers with the requisite skills to fill job openings. Thus, they say, the administration's fiscal stimulus and low interest rates set by the Federal Reserve have had muted effects.

 

"Firms have jobs, but can't find appropriate workers. The workers want to work, but can't find appropriate jobs," Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said in a recent speech. "Whatever the source, though, it is hard to see how the Fed can do much to cure this problem."

 

For the most part, those like Mr. Kocherlakota who believe structural factors are causing high unemployment are less inclined to use government programs to address the problem. One idea Mr. Kocherlakota does advocate would be to create an unemployment-insurance program in which benefits don't run out after a set number of weeks, as they do now, to help people weather the gaps between jobs. The payments would be set low enough so that they wouldn't provide an incentive to stay out of the labor force longer than necessary.

 

Those urging more government action say the problem is more straightforward: There just isn't enough spending or investment in the economy to entice firms to hire workers. With more demand, this side argues, unemployment will come down. Obama administration officials largely share this view.

 

"Real [gross domestic product] is growing, but not fast enough to create the hundreds of thousands of jobs each month needed to return employment to its pre-crisis level," Christina Romer, until Friday the chairwoman of the White House Council Economic Advisers, said in a speech. "This shortfall in demand, rather than structural changes in the composition of our output or a mismatch between worker skills and jobs, is the fundamental cause of our continued high unemployment. Firms aren't producing and hiring at normal levels simply because there isn't demand for a normal level of output."

 

Each side cites economic evidence for its view, though the truth likely resides somewhere in between.

 

Mr. Kocherlakota has been watching the unusual relationship between unemployment and the speed at which firms fill open positions. In normal times, as unemployment rises, firms are able to fill open positions quickly because they have more people to choose from.

 

In the past 18 months, however, that hasn't happened. Instead, the number of job openings climbed as unemployment rose and lingered at high levels. The job-opening rate, a measure of the number of available jobs as a percentage of total positions in the economy—both filled and vacant—has drifted up to 2.2% from 1.8% a year ago, rather than falling further as expected. It suggests a breakdown in the hiring process.

 

There are different theories for why this is occurring, and whether more fiscal or monetary stimulus would be unhelpful. One is that the industries that did so much hiring during the expansion of the past decade—such as construction and finance—are now down and out. Workers can't shuffle easily from those industries to ones with openings, such as manufacturing or health care, because they don't have the right skills.

 

Another theory is that people aren't moving to where the jobs are, perhaps because some are tied to homes they can't sell without taking big losses or because employed spouses can't find work elsewhere. The lack of mobility contributes to large disparities among state unemployment rates. In North Dakota, unemployment is 3.6%. In Nevada, it is more than 10 percentage points higher. Before the recession, by contrast, the gap between the states with the highest and lowest unemployment rates was 4.4 percentage points.

 

Without these structural impediments, the national unemployment rate might be as low as 6.5% today, Mr. Kocherlakota estimates.

 

Jan Hatzius, chief economist at Goldman Sachs, disagrees. "The increase in structural unemployment still looks pretty moderate to me," he says. Goldman estimates structural problems account for no more than three-quarters of a percentage point of the unemployment rate.

 

The real problem, Mr. Hatzius, Ms. Romer and like-minded economists argue, is a lack of overall spending in the economy—from consumers, business and government alike—which leads to a shortfall in jobs.

 

Even if all 2.9 million open jobs were filled immediately, that still wouldn't replace all 7.7 million jobs lost during the recession. Government spending or tax breaks that bolster demand will cause firms to create jobs, this camp argues.

 

On one point, both sides largely agree: The longer that unemployment stays high, the harder it could be to reduce, because workers' skills degrade. That's a particular concern since 6.2 million workers have been without jobs for six months or more, the Labor Department said Friday.

 

http://tiny.cc/1dmdh

[1eyedjack]

I think that you should always include an option for "Other" in polls like this. It is rare to cover all bases with the specified options given.

 

I suspect that a significant part of the problem (and not just in the US) is that workers have become accustomed to a level of salary, working conditions and lifestyle that is uncompetitive in comparison with other areas of the world, and will not settle for anything less.

[hotShot]

Seems to me the 1eyed sees more than the experts.

 

The cost for manpower are much lower in less developed counties and often they don't have environmental restrictions and no social security costs.

 

To compensate for that, the productivity has been optimized and the payment of the employed people did grow slower that the prizes.

 

Especially in the US a lot of the demand was payed on credit.

At some point people have to repay the money they borrowed.

 

It's my impression, that the banks worldwide are less careless about who they borrow money. As a result both entrepreneurs and customers have problems to get money from the banks.

 

We are looking at the combined effect of globalization, international economics and "casino investment banking".

[phil_20686]

You create a false premise, by poresuming that there is a "main" reason, rather than several. But that said,

 

I think two and 4 acn obviously be discounted, sure they are effects, but they have not changed appreciatively from their pre recession effects.

 

Options 5 and 6 are essentially the same from a macro economic standpoint. Especially as there are a limited number of things that the government can usefully spend money on without a great deal of planning. Some of the wastage on the US stimulus bill was beyond a joke. A good example might be a school - it often takes years of planning before you can actually hire construction workers. If you rush it you get a worse school and have effectively wasted money. If the government gives more money to consumers via raises in benefits or tax breaks then people tend to buy more sensible things, and studies suggest this is the most effective way to stimulate the economy.

 

Option 1 is fairly normal in any recession, and construction slow down does not seem particularly bad. It would not account foor why employment is particularly bad.

 

I would probably go for one of the last two options, but add that the cause of the last one is uncertainty of over the US structural deficit.

 

I could also add that I think that the saving/spending dichotomy is somewhat false. In reality people were living beyond their means, and this must be corrected for such that standards of living reflect the economic fundamentals. This is true both for governments and for private citizens. In effect, large amounts of borrowing have inflated personal wealth and GDP, this must be allowed to deflate.

 

Finally, I might add, that banks will not be able to lend much until their capital cushions have been expanded. This means waiting for private consumers to pay down their debts. Banks will only be able to lend when the total debt the hold is reduced, thus if consumers kept borrowing rather than saving it might prop up demand in the short time, but it would also prolong the problem.

[Rain]

I think 1eyedjack's reason is more accurate than the ones listed. For the WSJ to omit something this obvious just sheds doubt on their article, and not for the first time.

 

Anyway globalisation - it this always a good thing? Yeah for my tiny homeland (Singapore) since they've become a net recipient in the years past. But when it's USA pouring technology and jobs out, it seldom benefits mainstreet USA, at least not overtly.

 

So many jobs are commodities. If not for protective policies in place, jobs in say, construction, will be even cheaper as neighbour semi skilled labour pour in. To stay on top, you constantly need to innovate, which means intellectual capital for the most part in an economy like USA. How many jobs are like these?

 

--------

And anecdotally, it's clear there are 2 classes emerging here. The haves and haves not. Expensive restaurants are still crowded where I live, you couldn't get a reservation easily! But at the same time one hears of unemployment and job losses, people having to move to another state for more labor intensive jobs.

[hrothgar]

Like most people, I think that this is a result of a combination of factors.

 

1. The US has a large population of laborers who are too expensive to employ. You aren't going to be able to compete with China, India, and the like based on low cost, unskilled labor.

 

2. At the same time, much of the population can't compete at the upper end of the spectrum. Most folks out there don't have the skill sets necessary for the knowledge economy.

 

3. Countries such as Germany have been able to maintain their competitiveness, however, Germany has a well designed industrial policy designed to promote exports.

 

In all honesty, we've been screwed for a while, however, the tech bubble and (later) the housing bubble was masking just how bad things have gotten.

 

Long term, I think that its going to be difficult to do much of anything without significantly simplifying the tax structure, improving the education system, and moving to a single payer health care system.

 

Short term, I'd like to see the following:

 

1. Carbon tax: This is a very easy way to simultaneously raise revenue and boost economic growth

 

2. Much larger economic stimulus program

 

3. Allow a number of states to opt out of the Federal Income Tax system. States like North Dakota, Alaska, Alabama, Louisiana, South Carolina, Texas, Mississippi should be allowed to redirect 100% of their current Federal income taxes to the states. (Of course, in return, the Feds should shut down all aid and all Federal spending directed towards those states...)

[ggwhiz]

"Firms have jobs, but can't find appropriate workers. The workers want to work, but can't find appropriate jobs,"

 

I haven't seen it yet but below is a link to a new documentary by the guy that did An Inconvenient Truth. It'a all about the state of the Education system and perhaps a very big factor.

 

www.waitingforsuperman.com/

[OleBerg]

Capitalism.

[hanp]

Why is "economic recession" not one of the answers?

[helene_t]

Capitalism.

Nonono! The correct answer is "ACBL system restrictions". How long have you been on this forum.

 

Anyway, it is the recession, as Han hints. Obviously, lots of people will point to policies that they disagree with for other reasons and then blame unemployment of those, too. If you favor low taxes, blame unemployment on the high taxes. If you favor eduction, blame unemployment on the lack of gvt support for education. Etc.

[Lobowolf]

"Other"

[Winstonm]

[pdmunro]

One thing I recall from when I lived in the US for a few years was the competitiveness between the cities. I lived in St Louis. It seemed that regularly in the St Louis Post-Dispatch, there was some some story about how Mastercard, or Anheuser Busch or McDonnell Douglas (now part of Boeing) was being lured by other cities to transplant their operations to that city. I personally thought that that was part of what made US businesses so strong: the intense rivalry between cities. I guess that is still operating and will help to lift the US out of its doldrums.

[luke warm]

Short term, I'd like to see the following:

 

1.  Carbon tax:  This is a very easy way to simultaneously raise revenue and boost economic growth

explain how this would work, if you don't mind... use yourself (or me) as an example; how would that tax affect us? how would it affect businesses?

2.  Much larger economic stimulus program

who pays for it?

3.  Allow a number of states to opt out of the Federal Income Tax system.  States like North Dakota, Alaska, Alabama, Louisiana, South Carolina, Texas, Mississippi should be allowed to redirect 100% of their current Federal income taxes to the states.  (Of course, in return, the Feds should shut down all aid and all Federal spending directed towards those states...)

what are your thoughts on outright secession? for the sake of argument, let's say arizona, new mexico, texas, louisiana, mississippi, alabama, florida, tennessee, arkansas, and oklahoma decided (were allowed) to secede (it wouldn't surprise me if one or two of those decided against it, or if two or three others wanted to join in)... would the rest of the country be better off? assuming, of course, that the gulf remained in the hands of the separated states - after all, what good is it to d.c. with a drilling moratorium?

[hrothgar]

what are your thoughts on outright secession? for the sake of argument, let's say arizona, new mexico, texas, louisiana, mississippi, alabama, florida, tennessee, arkansas, and oklahoma decided (were allowed) to secede (it wouldn't surprise me if one or two of those decided against it, or if two or three others wanted to join in)... would the rest of the country be better off? assuming, of course, that the gulf remained in the hands of the separated states - after all, what good is it to d.c. with a drilling moratorium?

I have no objection to losing vast swaths of unimportant territory.

 

I don't think that the US can afford to lose the Mississippi.

I don't think that the US can afford to lose major ports along the Gulf.

 

With this said and done, I see nothing wrong with carving a few 100x100 square mile blocks of territory and letting them secede. Hell, I'll go one better.

 

We should find a few likely territories and kick their sorry butts out of the US. That way, whenever some idiot Libertarians starts talking about "Going Galt" we'll have a nice nearby territory that he can move off to...

[hrothgar]

2.  Much larger economic stimulus program

who pays for it?

Run up the deficit, soak the rich

Its necessary in the short term (especially since ridiculous tax cuts for the rich is a large part of what got us into this mess)

[hrothgar]

 

1.  Carbon tax:  This is a very easy way to simultaneously raise revenue and boost economic growth

 

explain how this would work, if you don't mind... use yourself (or me) as an example; how would that tax affect us? how would it affect businesses?

Activities that produce significant amounts of C02 would be taxed proportionally to the CO2 emissions.

 

Large points sources like utilities can be monitored at the point of production. CO2 emissions for cars and like is proportional to gasoline consumption. It would probably be simplest to use a gas tax to implement this on cars.

 

A portion of the proceeds can be remitted to consumers in the form of a lump sum payment. In an extreme form, all consumers would receive a cash rebate equal to 100% of the tax that they paid. (Personally, I think that it would be useful to generate some additional revenue, especially a few years out when the deficits start to balloon. I favor a scheme in which the tax phases in over 5 years or so, for the first 10 years $100 of the taxes get rebated to consumers with the amount falling sharply over the next five years).

 

The short term impact of the tax would be to shift consumption away from CO2 intensive products and services without significantly impacting utility. Over time, as the tax refunds decreases there should be a net decrease in the total total utility that consumers are able to afford. With luck, these impacts will be mitigated by innovation.

 

In the mean time, I think that you'll see significant increases in corporate investments as companies try to optimize around the new constraints.

[benlessard]

Way too much "vote for me" gouv spending year after year. Same problem in 95% of democratic countries that are crumbling under debts.

[blackshoe]

We should find a few likely territories and kick their sorry butts out of the US. That way, whenever some idiot Libertarians starts talking about "Going Galt" we'll have a nice nearby territory that he can move off to...

Look up the Robert Heinlein short story "Coventry". ;)

[cloa513]

 

1.  Carbon tax:  This is a very easy way to simultaneously raise revenue and boost economic growth

 

explain how this would work, if you don't mind... use yourself (or me) as an example; how would that tax affect us? how would it affect businesses?

Activities that produce significant amounts of C02 would be taxed proportionally to the CO2 emissions.

 

Large points sources like utilities can be monitored at the point of production. CO2 emissions for cars and like is proportional to gasoline consumption. It would probably be simplest to use a gas tax to implement this on cars.

 

A portion of the proceeds can be remitted to consumers in the form of a lump sum payment. In an extreme form, all consumers would receive a cash rebate equal to 100% of the tax that they paid. (Personally, I think that it would be useful to generate some additional revenue, especially a few years out when the deficits start to balloon. I favor a scheme in which the tax phases in over 5 years or so, for the first 10 years $100 of the taxes get rebated to consumers with the amount falling sharply over the next five years).

 

The short term impact of the tax would be to shift consumption away from CO2 intensive products and services without significantly impacting utility. Over time, as the tax refunds decreases there should be a net decrease in the total total utility that consumers are able to afford. With luck, these impacts will be mitigated by innovation.

 

In the mean time, I think that you'll see significant increases in corporate investments as companies try to optimize around the new constraints.

That just transfers all remaining external industry overseas where there is no carbon tax.

 

America needs reform and by that simplification. Put in a transfer tax where money moved through financial accounts attracts a certain percentage tax on withdrawl and deposit and abolish all other taxes. That will encourage companies to simplify their structures- hit all those companies and people trying to hide their money. Simplify laws- you have a mess of penalties such as the Fishermen who brought in lobsters in boxes and got prompt jailed for 3 years under the recognition of foreign wildlife using a Honduran law which is defunct. The government needs to step one step back from regulating industry- it does such a crap job anyway. Legislate for professional organisation to regulate industry and regulate those organisations instead of the companies directly. Government has a hard inflexible hand.

[benlessard]

We should find a few likely territories and kick their sorry butts out of the US. That way, whenever some idiot Libertarians starts talking about "Going Galt" we'll have a nice nearby territory that he can move off to...

I dont know enough about Ayn Rand objectivist etc .. But if we look at M. Friedman predictions, he seems pretty right on the spot. There is always a direct link between free economy and GDP for countries with comparable natural ressources. I really wish everybody watch "free to choose" on tv or the book.

[kenberg]

Opting out of both federal income tax and federal support is an interesting if somewhat unlikely idea. North Dakota was mentioned. They would probably jump at the chance since their economy seems to be humming along just fine. See for example

http://www.forbes.com/2009/06/30/north-dak...gy-economy.html

They also regularly score near the top on tests that show, or purport to show, how well students are learning in school.

There was a story in the Washington Post last summer or fall about a woman who moved from somewhere in the South, perhaps one of the Carolinas, to ND to get a job. I have always hoped for a follow-up to see how February in Fargo treated her.

[helene_t]

If everyone opts out of the federal income tax system, who is then going to pay for federal institutions like foreign affairs and defense?

[hrothgar]

Opting out of both federal income tax and federal support is an interesting if somewhat unlikely idea. North Dakota was mentioned. They would probably jump at the chance since their economy seems to be humming along just fine. See for example

http://www.forbes.com/2009/06/30/north-dak...gy-economy.html

They also regularly score near the top on tests that show, or purport to show, how well students are learning in school.

There was a story in the Washington Post last summer or fall about a woman who moved from somewhere in the South, perhaps one of the Carolinas, to ND to get a job. I have always hoped for a follow-up to see how February in Fargo treated her.

The reason that I suggested States liek North Dakota, Mississippi, Alaska and the like is that these states

 

1. Consume much more in terms of Federal resources than they contribute

2. Are aggressively "Red"

 

I think that its time for the citizens of said state to get a wake up call regarding just how much Washington is doing for them. At the same time, cutting them off at the knees can only help the budget deficit.

[P_Marlowe]

Certainly the answer to your question is, that there are multiple reasons.

 

But the truth is, that solving the unemployment problem will require a long

term strategy.

And a long term strategy is nothing you can implement today and see the

effects tommorow.

 

And it is doubtful, that the current US politics establishment is being able

to follow a long term strategy, even if they had the will to do it.

 

If I look at Germany, I hear the bubbling, that we may be road reaching

full emplyoement, nobody spoke against this remark, ..., but this remark

was complete ...,

 

Our statistics report, that we may in short time less than 3Mio workers, the

truth is, that this statistics ignore lots of peoble, which dont counted anymore

as jobless, but in fact are.

 

Looking at the US numbers, if I remember it correctly (my source is the Hearld

Tribune), to get counted as jobless implies with high certainty, that you lost your

job in a not so distant past, a little bit oversimplified.

 

But the truth is, that the level of US unemployment was also very high

prerecession, the only difference, that only fewer peoble lost jobs, in the

prerecession times.

 

To solve this issue, there is only one way: educate the peoble, including the

unemployed, and we are not talking about 1%.

 

Coming back to Germany: We have such programs in place, however baldy

they may be, our overall school system is at the moment still ok, I am talking

about top universities, I am talking about the middle, but the decline can already

be seen.

You may have heard about our current debate around Sarazin, his thesis are ...,

but it is true, that we have issues, if it comes to educate peoble.

 

With kind regards

Marlowe

With kind regards

Marlowe