Yes, the Overwhelming Bulk of Our Excess Unemployment Is the Result of Slack Aggregate Demand
Mike Konczal:
What Can the Distribution of Unemployed Job Matches, by Duration, Tell us About the Long-Term Unemployed?: The Bureau of Labor Statistics just released some data that I had spent the last year coveting like it was my neighbor’s ass.... [L]et’s recap some structural unemployment developments. First, the BLS dramatically overstated the number of job openings throughout 2010, leading policy makers and economic commentators to discuss structural unemployment with a much better job market in mind than ever actually existed in reality. Second, data regarding a decrease in mobility turned out to have major flaws, leading to a wave of research finding little impact, and perhaps even a positive relationship, between the housing bubble and mobility. The amount of people underwater correlates much better with de-leveraging than it does with less mobility. Third, education or gender job dynamics are not sufficient conditions for explaining our jobs crisis. And fourth, our back-of-the-blog estimates based on the Beveridge Curve give an increase in structural unemployment of about 1%; really sophisticated estimates also give an estimated increase of at most 1%. Lots of room for more action....
There’s another argument we haven’t addressed... that goes like this: the unemployed have bifurcated, split into a normal-ish labor force of short-term unemployed and then a large group of long-term unemployed. The economy put a lot of people into unemployment during 2008 and 2009, and they’ve never been reabsorbed into employment.
In this argument, there’s something uniquely, economically bad about the long-term unemployed. Their marginal productivity is near zero, which is why they were fired during the Recession in the first place and why employers won’t hire them now. Hysteresis has set in, which means that being detached from the labor force for as long as they have been makes it less likely that they can be re-employed. They may even be bad Americans. To whatever extent monetary and fiscal policy can help with generic, short-term unemployment, it certainly can’t help this problem of the long-term unemployed. There’s a reason they were fired in the first place....
This data helps us understand the distribution of successful job matches across the duration of unemployment, which will separate out short-term versus long-term unemployment. Are firms more likely to hire those who have only been unemployed a short period of time and less likely to hire the long-term unemployed, or are they more willing to hire the long-term unemployed?...
[J]obs are much more likely to be matched to the long-term unemployed and less likely to be matched to the short-term unemployed relative to their historical averages.... Is the issue that the labor market for those recently unemployed has become so tight – that people are finding jobs very quickly – that employers are then turning to the long-term unemployed?... The difficultly of finding a job has increase for all duration groups, particularly the short-term unemployed more so than the long-term unemployed, and has stayed that way post-Great Recession. It’s very tough out there for the large number of long-term unemployed. But the idea that they are ultimately unemployable doesn’t jump out at us from this data....
[ T]his is making me think we don’t need job retraining, mobility support, or other magic tricks to help the long-term unemployed as a matter of necessity; we should be focused on first exhausting the simple mechanism of creating more jobs through a mix of monetary and fiscal policy.
