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Thursday, August 12, 2010

Word of the Day - “Structural unemployment”

“Structural unemployment” is being tossed around more and more by the talking heads and financial blogeratti. For the uninitiated, 'structural unemployment' is an economist's way of throwing up his hands and saying there is no way to fix the problem, because it is built into the structure of the system. Politicians will grasp the concept with both hands and hide behind it.

Edmund Phelps wrote an op ed piece in the New York Times on August 6 arguing that much of the recent rise in US unemployment (and, by implication, global unemployment) has been structural in nature, and therefore will not be amenable to correction simply by boosting aggregate demand.

What has all this got to do with the current level of unemployment, which stands at 9.5 per cent in the US? Phelps believes that the credit crunch has administered a major negative shock to the economy which has increased the structural unemployment rate to about 7-7.5 per cent.

The one thing that you often don't hear mentioned when reporters talk about the unemployment rate, is the number of people who are not counted in that number, the persons deemed to no longer be in the work force (not simply because they retire or have chosen to be a stay at home parent, but the huge number of those deemed "no longer looking for work").  Many of these people are not looking for work because there is none available.  Phelps would now add a huge number to that category.

The new poor.

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