Advertisement
Economic Forecasts

What's Keeping the Jobless Rate High

Even as the economy recovers, some jobs will never come back.

We talk to Ethan Harris, head of North America Economics at Bank of America Merrill Lynch Global Research. Interview by Anne Kates Smith

Economists are debating whether our stubbornly high unemployment rate is due to structural or cyclical factors. Can you explain the difference? Structural unemployment is the level the economy tends to settle at when economic activity is back to normal. There are always some people between jobs, because they have the wrong skill sets or because it just takes time to find work. You can address structural unemployment only through education and other support programs, not through monetary or fiscal policy. High cyclical unemployment occurs during recessions, when businesses temporarily lay off lots of people. As the economy recovers, those jobs usually come back.

Advertisement - Article continues below

Which is it this time around? In a normal recession, the period of very high unemployment is usually short -- a couple of years. This recession has been very deep, and the recovery, very weak. That means a greater risk of structural unemployment. People out of work for a year or two become much harder to employ because they lose skills. Also, this time around people are unable to move to take a job because of negative equity in their homes. And some industries have suffered a sustained shock. We think there's more of a structural loss within real estate and manufacturing that's not going to come back -- and a large group of people who have invested in skills that are much less marketable now.

Advertisement
Advertisement - Article continues below

So our problems are structural? Higher structural unemployment doesn't mean it's all structural. We think one-fourth of the rise in unemployment is structural -- about 1.5 percentage points of the increase from 4.5% unemployment to about 9.5% now.

What can be done? The quicker you get the cyclical rate down, the fewer long-term unemployeds there are. You want to break the vicious cycle. The government needs to keep both feet planted on the accelerator of easy monetary and fiscal policy. Anything to reallocate people geographically and across jobs will help -- finding ways to improve the housing picture will increase mobility. Job training is important.

When will things get back to normal? Not for at least three to four years. And then, we may still have a 6.5% unemployment rate.

Advertisement

Most Popular

65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
8 Ways You Might Be Cheating on Your Taxes
taxes

8 Ways You Might Be Cheating on Your Taxes

Don't fall into these common traps that can get you in hot water with the IRS.
July 8, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

Travel Planning in the Time of Coronavirus
Travel

Travel Planning in the Time of Coronavirus

Insurance may not cover canceled vacations, but airlines and hotels may be flexible.
June 11, 2020
13 Things That May Soon Disappear Forever (The Pandemic Edition)
business

13 Things That May Soon Disappear Forever (The Pandemic Edition)

Emerging technologies (and now the COVID-19 pandemic) are putting an end to these familiar items and practices.
June 9, 2020
Don't Let the Drama Surrounding PPP Distract You from Running Your Business
business

Don't Let the Drama Surrounding PPP Distract You from Running Your Business

If you're so wrapped up in worry about your Paycheck Protection Program loan not being forgiven, think about the worst-case scenario. It might not be …
June 5, 2020
Another Epidemic to Worry About: Identity Theft
business

Another Epidemic to Worry About: Identity Theft

Fraud losses grew in 2019 and are likely to increase in 2020.
June 5, 2020