The Bureau of Labor Statistics reported Friday that the economy lost 85,000 jobs in the month of December. The unemployment rate stayed unchanged at 10.0 percent. Now, two years after the start of the recession, the National Bureau of Economic Research has not yet declared it over, which makes it the longest recession since the Great Depression of 1929-1933. Recessions have averaged about 11 months in length since the creation of the Federal Reserve. The latest jobs report indicates that unemployment might remain high because of a structural, rather than a cyclical, shift in employment.
Cyclical unemployment stems from businesses’ inability to forecast the ebb and flow of demand. In times where demand unexpectedly decreases, inventories go unsold, so businesses produce less and lay off employees. When demand returns, they hire workers to fill the same positions and replenish their inventories. Structural unemployment occurs when demand shifts permanently. The jobs that existed before the recession won’t return in the next phase of the business cycle, nor will the cycle progress until new businesses or industries to meet the permanently shifted demand.
In December, 6.1 million unemployed workers had been without a job for 27 weeks or longer — up from the month before and over twice as many as in 2008. Long-term unemployment accounts for 40 percent of the jobless. Additionally, 2.5 million people were marginally attached to the labor force, i.e. they had looked for a job in the past year, but not in the past month. More than a third of those marginally attached had given up looking for work because they believe that there are no jobs available for them. The underemployment rate, which includes the workers with part-time jobs who want full-time jobs, stands at 17.3 percent — up from 17.2 percent last month and 13.7 percent a year ago. All of these points are consistent with structural unemployment where jobs lost do not return.
If that’s the case, then government subsidies to struggling firms prevent the recovery by delaying the shift from failing to productive firms and industries. Welfare transfer payments to individuals won’t help people find jobs in the new industries as much as increased funding for education and retraining.
