Is there a structural labor problem?

Date posted: October 8, 2012

The job market is still a big issue in the economy. Some say much of the problem is structural rather than cyclical. What is structural versus cyclical? Which is the problem? And why does it matter? N.C. State University economist Mike Walden responds.

“Well , structural unemployment occurs when the people who are unemployed and looking for work don’t have the skills that businesses want. A lot of people say that’s one of our big problems today. Cyclical unemployment is the unemployment that results because of a recession. So, once the recession goes away, that kind of unemployment will disappear. And a lot of economists say that’s the major problem.

“So when it comes to your second question, we do have a debate between economists as to which is most important right now: Is it structural unemployment? Or is it cyclical unemployment?

“Now your third question — why does it matter? — is very, very important because which problem we have or which problem we have more of will dictate what kind of policies we need to solve the unemployment problem. If the problem is structural — that is, workers don’t have the right skills — then obviously the answer is we have to get unemployed folks re-trained. So, there should be a lot of emphasis in spending on retraining, education, et cetera.

“However, if more of the problem is cyclical, then it means temporary solutions, temporary stimulus like from the federal spending or from the Federal Reserve — printing money and buying assets. — that should help solve the problem.

“Right now we don’t have a clear cut answer because economists disagree. Therefore, we disagree on what policies are most appropriate.”

 

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