Tuesday, January 29, 2013

The economy can't recover fully and Government can't get smaller unless we address the issue of the Long Term Unemployed. Everything else is unproductive commentary. See here why...

A very nice discussion and summary, in this Bruce Bartlett column at the The Economix,  of two major classifications that people can be slotted into in terms of their unemployment status---Cyclical and Structural Unemployment.  The third category, Frictional Unemployment is not explicitly identified.

Below I excerpted an important part of his posting that I think is important.  There are two different afflictions that conspire to affect the same group of people, the long(er) term unemployed. 

The first is time---time not engaged in productive work, especially in the area the worker specializes in.  Skills erode and unless the he/she can update those skills to remain current in the field, they can become less relevant to an employer the longer they are idle.

The second is the employment of capital to automate "routine skills and procedures" that effectively render a workers previously relevant skills obsolete. 

So, time and technology are the crux of the problem for hundreds of thousands (if not millions) of workers.  What are these folks to do? They are not going away.  I venture to say MOST want productive work but they are caught in between the proverbial rock and a hard place. They are either going to be absorbed by the market place or by government programs of some sort.

I encourage you to read the whole article. It connects lots of dots to the study of Unemployment in an Economics class.

Outsourcing, Insourcing and Automation
"...If the central problem is a lack of aggregate demand, then the vast bulk of the unemployed are jobless through no fault of their own. This macroeconomic problem requires a more expansive monetary and fiscal policy.
But if the problem is structural, increasing aggregate demand is unlikely to reduce unemployment and is more likely to raise the rate of inflation.
Structural unemployment is much more difficult to deal with. Workers may require extensive retraining because the businesses and industries that employed them no longer exist, and their skills no longer have the value they once did.
The distinction between cyclical unemployment and structural unemployment is further complicated by something called hysteresis, which, basically, is the process whereby cyclical unemployment is converted into structural unemployment.
The longer someone is out of work, the less likely that person is to find a job. Skills deteriorate, younger workers tend to be hired for available vacancies, jobs move to new geographical locations and so on.
Another factor that contributes to structural unemployment is automation — the replacement of human labor with machinery, computers and robots....

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