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Politics Isn’t the Only Factor in Unemployment


November 6, 2012

Lately there has been a great deal of finger-pointing by the politicians about who and what is to blame for the continuing high unemployment rate. It is complicated. To get a handle on the unemployment problem, we need to identify the “cyclical” and “structural” factors contributing to the high unemployment rate.

Cyclical problems are those that are caused by the natural rising and falling of the economy. They mostly relate to basic supply and demand. The fixes to cyclical problems can usually be enacted by the Federal Reserve and Congress. The Fed tinkers with interest rates and the money supply (“monetary policy”). Congress usually throws money (normally borrowed) at the problem (“fiscal policy”). The main idea is to stimulate demand sufficiently to cause businesses to hire more people to increase production to meet that demand.

Structural problems won’t go away when the economy cycles towards increased growth. They will continue to act as a drag on the economy and, in this case, the employment rate. They are problems that need fixing. Not only must we have adequate demand for goods and services, but the American work force must be able to meet that production demand in the most cost-effective manner. The structural problems can be pretty hairy and we might have to drill down through several levels of subordinate structural factors to really understand the original structural problem and its solution(s).

For instance, education might well be a contributing structural problem impacting unemployment. American youth are not being sufficiently educated and trained. Symptoms abound that there are problems in education-land. If foreign labor is cheaper but more skilled, unemployment will stay high as business seeks more efficiency and higher profitability. The U.S. spends gobs of money on education and yet comes out towards the end of the pack of developed nations, as measured by math and reading test results. We don’t even have to go overseas to see there is a problem. I remember a few years ago reading about a furor being caused in California because of a racial diversity problem at the collegiate level. The problem was that a minority was grabbing a disproportionate number of slots for state colleges. That minority was Asian! Go figure. These folks had to first learn a foreign language (English) and still came out disproportionately on top, leaving white folks, black folks, Native American and Hispanics choking in their dust!

Try to fix some of the educational problems in high school and we run eyeball-to-eyeball into the teacher unions as they resist working harder, longer and perhaps for less pay, especially if that pay is based on performance. No surprise there. Chicago teachers set the example when they went on strike. The teachers often point to the poor quality of students that show up in their classrooms as the reason for sub-par test performance by their graduates. The argument goes that teachers can only do so much! The children’s families must also be held accountable.

Ah! America’s broken family structure is another level of structural problem contributing to the unemployment problem. Single parents have a tough job raising their kids. There are success stories such as successful athletes who point to their mothers as role models who worked several jobs while keeping their charges on the straight and narrow. Unfortunately, for every such success story there are many more where the child ends up dead or in prison. It is no coincidence that Asian families are famously strong and highly motivate their children to attend college.

Demographics contribute to the unemployment structural problem. We are an aging population (although not as bad as China and Japan). Young immigrants can help. Expect labor unions to resist “giving jobs away” to foreigners, even if the union membership lacks the necessary education and skill levels to meet labor skills demand.

There are also indications that our work ethic may be slipping. Our industries are crying for engineers; yet there is a dearth of American applicants for college engineering majors. At the other end of the spectrum, I heard a piece on PBS on October 3, 2012 about apple growers in the state of Washington who were having great difficulty bringing in the harvest due to lack of available labor. Labor costs were rising. An experienced picker could make up to a thousand dollars per week. A mom, dad and couple of teens could make some serious money. Yet an owner complained that Americans only lasted about a day on the job, which involves going up and down a ladder with a 40 lb. bag of apples. (Might obesity be another factor in the unemployment problem?)

So in this example, to successfully work on the unemployment structural problem, we see we will also need to work on education (and relations with the Teachers Union), American families, the shrinking demographic work pool and the work ethic structural problems. And those are just some of the more visible structural difficulties impacting unemployment. There may be others.

The bottom line is that our labor force needs to become more competitive with our trading partners to successfully improve unemployment. To do so, we will have to face up to some significant structural headwinds.

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