Sunday, May 1, 2011

One look at this graph and you may become (if not already) a Keynesian...Do not turn away!!

Source: Econbrowser
This graph shows two important categories that economists use to define peoples unemployment status. 

One is cyclical unemployment (Red Bar), which means people lose there jobs because there is a down turn in the business cycle. This is a fancy way of saying there is a lack of demand for the goods and/or services businesses produce so they lay-off workers and/or close the business altogether. The workers skills are still relevant and they want to work, but there is no current demand for the goods or services they produced.

The other is structural/technological unemployment (Blue Bar) which means people have lost their jobs due to changes in technology and work place efficiencies. This is a fancy way of saying you lost your job to a machine, robot, computer, or better processes.  Workers skills have become obsolete and must update their skill-set or learn to do something else altogether.  The longer one is unemployed, the threat of moving from cyclically unemployed to structurally unemployed increases. This is not good for the worker because there can be a significant time lag between getting the re-training and obtaining a new job.  What to do in the meantime? How to support themselves? Their families? How to pay for re-training?

The good news (if there is any) is that while the ranks of the structurally unemployed is growing, the MAIN problem is cyclical unemployment.  This graph shows approx. 60% of unemployment is cyclical.   These workers are, more or less, ready to go back to work, have the relevant skills and can be productive immediately IF THERE WAS DEMAND FOR WHAT THEY CAN PRODUCE. 

So...Does this beg for a Keynesian solution to the problem?  Private sector hiring is not robust.  Could MORE "priming of the pump" by Government be necessary to kick start the economy and get Aggregate Demand increasing?

If not, what is your solution?  Inquiring minds want to know...
View My Stats