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Even Economists Can't Decide The Cause of High Unemployment

Business minds are deadlocked over the fundamental root of unemployment, and it may be costing the country billions

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May 15, 2012 RSS Feed Print
A representative from Time Warner Cable takes job applications at a job fair in New York.

A representative from Time Warner Cable takes job applications at a job fair in New York.

Laurenti says that, while the recession sent unemployment rates skyrocketing, this structural problem has been slowly building for much longer.

"This has been a trend going on for quite some time in the U.S. economy. I think the problem is the economic crisis accelerated the trend," he says.

If those who believe unemployment is a structural problem are right, it may mean that Federal Reserve's actions of pumping money into the economy and keeping interest rates historically low have been ineffective. As Richmond Fed President Jeffrey Lacker said last week, "[I]f elevated unemployment reflects largely fundamental factors rather than insufficient spending, [monetary] stimulus might have little impact on unemployment and instead just raise the risk of pushing inflation up."

[See how Chinese banks are invading the U.S. market.]

If structural problems are to blame, that also means that job-training programs might be a better route to creating jobs than ploys like tax cuts.

On the other hand, if current unemployment is largely cyclical, there is still reason to hope that policymakers will hurry to do what they can before the problem becomes even more stubborn, as Bernanke said in March: "If progress in reducing unemployment is too slow, the long-term unemployed will see their skills and labor force attachment atrophy further, possibly converting a cyclical problem into a structural one."

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at dkurtzleben@usnews.com.

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80% of new jobs come from small businesses. Of that, new start-ups (in business under 1-2 yrs) account for the bulk of NET employment increases. There is a severe deficit of new business formation. Hyper-regulation, uncertain costs from healthcare changes, uncertain prospect for taxes, very high credit requirements for borrowing are all factors..

No policies will increase employment that don't address the problems of new business formation.

Joseph of PA 1:03PM May 23, 2012

Total crap!! It is only Keynesian economists who can't agree on this condition. The very idiots who caused it starting with FED, closing gold window and fiat money on an ever increasing scale. Gross and the Jewisg Sioux have it just right. There is no problem in the grain belt or the shale energy locales. The problem areas are mostly in the Socialist states with high taxes, too much regulation and the prepondrance of the "takers"

John Mcdonald of DE 11:09PM May 22, 2012

And we need to consider that it may be some combination of the above at differing degrees of impact. For example, (1) There is clearly a mis-match of skills sets between the unemployed and employer needs; (2) some older americans are working longer not allowing younger workers to fill these spots (this may change rather dramatically in the future if older americans start to retire en masse); and (3) due to excessive regulations, taxation, and cost of doing business, the US is simply not competitive for many companies to conduct business here.

Keeping in mind that as more people go back to work, start spending thereby circulating money through the economy, and some stop receiving government payments, there will be natural benefits to also solving the state and federal debt problems == positive feedback loop.

As such, the policymakers may want to start by: (1) eliminating all duplicate and unnecessary regulations; (2) establishing state and federal advocacy teams with authority to expedite the permitting of new and expanding businesses; (3) education re-training loans (not gifts) for unemployed persons wishing to learn new skills; (4) simplify the personal and business state and federal tax codes (eliminate all social engineering); and (5) eliminate all government programs which attempt to manipulate the economy to achieve some desired result in which the free-market is not yet ready (i.e. solar energy, electric cars, etc.) -- these programs almost (?) always backfire and always serve to help a very small group of ("favored-nation") citizens for a very short time.

Jim of CA 11:22AM May 17, 2012

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