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Labor-market failures will not be demand-side but structural, not amenable to any straightforward and easily implemented cure

J. Bradford DeLong

At first, the long-term unemployed in the Great Depression searched eagerly and diligently for alternative sources of work. But, after six months or so passed without successful reemployment, they tended to become discouraged and distraught. After 12 months of continuous unemployment, the typical unemployed worker still searched for a job, but in a desultory fashion, without much hope. And, after two years of unemployment, the worker, accurately expecting to be at the end of every hiring queue, had lost hope and, for all practical purposes, left the labor market.

This was the pattern of the long-term unemployed in the Great Depression. It was also the pattern of the long-term unemployed in Western Europe at the end of the 1980s. And, in a year or two, it will be the pattern again for the long-term unemployed in the North Atlantic region.

I have been arguing for four years that our business-cycle problems call for more aggressively expansionary monetary and fiscal policies, and that our biggest problems would quickly melt away were such policies to be adopted. That is still true. But, over the next two years, barring a sudden and unexpected interruption of current trends, it will become less true.

The current balance of probabilities is that two years from now, the North Atlantic’s principal labor-market failures will not be demand-side market failures that could be easily remedied by more aggressive policies to boost economic activity and employment. Rather, they will be structural market failures of participation that are not amenable to any straightforward and easily implemented cure….

via No End To Long-Term Unemployment – Business Insider.

Monetary and fiscal policies will never suffice to reduce long term unemployment

POSTED BY  ⋅ FEBRUARY 15, 2012 ⋅ 10 COMMENTS

One of the main policies to reduce long-term unemployment is an active labor market policy. The OECD publishes each year data on Government investments in labor market programs like training and wage subsidies.
Gemany and the Scandinavian countries are champions of active labor market policies. This is well known. But, less known is the fact that the US are not. US investment in active labor market programs before the Great recession wasbelow the OECD average, nearly 4 times lower: 0.13% of GDP vs 0.48%.
Continue reading »

US Unemployment System – A Bad Employment Policy

POSTED BY  ⋅ JULY 21, 2012 ⋅ 2 COMMENTS

…Between 2008 and 2011, $174 billion in unemployment taxes was collected while $450 billion was paid out in benefits, a gap of $276 billion. Thirty-four states blew through their unemployment insurance trust funds and borrowed from Washington — and 22 of those still owe the feds a total of more than $30 billion, according to … Continue reading »

Lost jobs aren’t coming back and new skills are needed

POSTED BY  ⋅ JULY 19, 2012 ⋅ 1 COMMENT

Do we expect the jobs that resulted from the housing boom to once again come to the rescue of low-wage Americans? The run-up in home prices that triggered the jump in construction and local spending was relatively short-lived, and home prices have returned to the levels where one might expect them to be, based on … Continue reading »

Long-Term Unemployment is not a short term problem

POSTED BY  ⋅ MAY 7, 2012 ⋅ 4 COMMENTS

“While I do not see much evidence of any significant increase in structural unemployment so far, I am concerned that structural unemployment could increase over time if the labor market heals too slowly–a phenomenon known as hysteresis” said Bernanke at the Money Marketeers of New York University, New York, New York, on April 11, 2012. … Continue reading »

Unemployment in the U.S. | What Can Policy Do?

POSTED BY  ⋅ APRIL 27, 2012 ⋅ 6 COMMENTS

The U.S. labor market has been reeling since the onset of the Great Recession in December 2007. Public concern has largely focused on the unemployment rate, which rose to double digits and has stalled at more than 8 percent. This rate is unacceptably high, and macroeconomic policy efforts have been unsuccessful in bringing it down write Robert … Continue reading »

Bridge to Work | Experiments with unemployment insurance keep benefits to recipients in job training

POSTED BY  ⋅ APRIL 19, 2012 ⋅ LEAVE A COMMENT

The Obama administration is looking for states that will experiment with unemployment insurance programs by letting people test a job while still receiving benefits. The plan is a key feature of a payroll tax cut package that President Barack Obama negotiated with congressional Republicans in February. The Labor Department will open the application process Thursday … Continue reading »

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