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Bernanke on unemployment and structural change

By Neil Irwin
BOSTON -- His speech Friday morning has gotten big headlines for what it says about the economy and prospects for new policy action, but Federal Reserve Chairman Ben S. Bernanke also waded into a debate that has occupied the economics blogosphere of late.

Might part of the current sky-high unemployment rate reflect structural changes in the economy, as opposed to a mere shortfall in aggregate demand? Bernanke's colleague Narayana Kocherlakota of the Minneapolis Fed has raised this possibility, and some economists point to it as a reason that neither the Fed nor fiscal authorities should take significant new action to try to boost growth.

Bernanke grapples with these arguments, but seems to reject them pretty definitively. That is one more reason to think that the Fed will undertake new monetary easing in the near future. If Bernanke gave strong credence to structural arguments, he would be more inclined to take a hands-off approach to trying to support growth.

"It is essential to consider the extent to which structural factors may be contributing to elevated rates of unemployment," Bernanke said at the Federal Reserve Bank of Boston's conference on monetary policy. "For example, the continuing high level of job losers may be a sign that structural impediments--such as barriers to worker mobility or mismatches between the skills that workers have and the ones that employers require--are hindering unemployed individuals from finding new jobs. The recent behavior of unemployment and job vacancies--somewhat more vacancies are reported than would usually be the case, given the number of people looking for work--is also suggestive of some increase in the level of structural unemployment."

"On the other hand, we see little evidence that the reallocation of workers across industries and regions is particularly pronounced relative to other periods of recession, suggesting that the pace of structural change is not greater than normal. Moreover, previous post World War II recessions do not seem to have resulted in higher structural unemployment, which many economists attribute to the relative flexibility of the U.S. labor market."

"Overall, my assessment is that the bulk of the increase in unemployment since the recession began is attributable to the sharp contraction in economic activity that occurred in the wake of the financial crisis and the continuing shortfall of aggregate demand since then, rather than to structural factors."

By Washington Post staff  | October 15, 2010; 1:03 PM ET
Categories:  Federal Reserve, U.S. Economy, U.S. Labor Department, Unemployment  
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Comments

So some of the Fed Members are talking about Structural unemployment.

Won't it be great if someone could tell people which sectors and geographical areas the vacancies are? I think the structural component is insignificant compared to the cyclical component.

I agree there is some structural unemployment - they need more foreclosure experts for example, But it is a temporary thing and won't help anyone to try and make a career out of it.

There are even some specialized jobs in Information technology fields like Server Virtualization that help companies to cut their IT costs. But these require experience and are not entry level jobs. There are plenty of Mid-Junior Level IT workers out of work.

Posted by: radicall | October 15, 2010 5:39 PM | Report abuse

i think the correct way to view it is structural demand shortfall

consumers had levereged up and stuff then crisis hit and got stuck in mess the us consumers wont get back to pre reccession demand anytime soon if ever

it is structual in nature just not on employment side but demand side untill demand picks up which wont happan till consumers balance sheet recovers there wont be sustained job growth no matter how much qe you do you could have fed gobble up all the marketable tresurys and mortgages it wont change anything

we need more global consumer demand the us consumer wont anytime soon be back to its former self

Posted by: zed260 | October 16, 2010 6:32 PM | Report abuse

Our unemployment is really pathetic. Hopefully it will take some strides in the next few years. I know that now, there are opportunities to receive free training so the unemployed can obtain careers rather than just jobs. I mean sure, a job is better than no job, but you want some security if possible. Check this out: http://bit.ly/cGLP9D

Posted by: tmackle48 | October 19, 2010 9:49 AM | Report abuse

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