June 12, 2011

EVERYTHING OLD IS NEW AGAIN:

Is higher joblessness rate the 'new normal'? (Kevin G. Hall, 6/11/11, McClatchy Newspapers)

At issue is what's called the "full employment" rate. It's generally thought to be the rate at which everybody willing and able to work can find a job. It's a theoretical "ideal" rate; "full" employment can't be zero because there'll always be people transitioning between jobs, others with disabilities and those who aren't interested in working or who have given up finding work who'll be excluded from the workforce.

For much of the 1980s, the unemployment rate hovered between 6 percent and 7.5 percent. During the mid-1990s, the rate fell steadily to around what economists came to consider the rate of full employment - 5 percent. Anything above that would signal inefficiencies in the economy.

Then in 2000, the improbable happened. It hovered around 4 percent most of the year, then dipped to 3.9 percent during the final four months. Those numbers were stronger than most economists thought possible without triggering inflation.

Today, perceptions are far different.

If the "new normal" means a full employment rate of 7 percent, that suggests a wide mismatch between available jobs and the skills that unemployed workers possess - construction workers lost jobs and don't qualify for ones in the booming health-services sector, for example. Economists call this a structural shift in the workforce, and a growing body of research increasingly suggests that's what's happening now.

"It just screams out that there has been a structural break. We try to make it more complicated than it is," said Mark Vitner, a senior economist with the Wells Fargo Securities Economics Group and author of a provocative report on the new normal in the labor market.


Thinking of it as a structural break likewise overcomplicates things. Instead, we can simply view the current employment rate as a return to historical norms:

following a forty year period in which we experienced lowered productivity as the result of a perfectly reasonable effort to employ people previously thought unfit for work. This meant creating a vast number of makework jobs that basically added no value. But now that we know that these folks are just as capable of doing the real work as white males were there's no reason the genuinely productive jobs shouldn't be filled by American women and people of color or done overseas. So the employment rate drifted back towards its normal baseline.


Posted by at June 12, 2011 7:27 PM
  

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