Why is unemployment still high?
Even though the economy is beginning to right itself in some respects, such as increased consumer demand and a stock market recovery, the jobs picture still looks as bleak. Economists are toying around with a number of explanations, but despite such musings the root cause of employment, and hence its cure, remains obscure.
For example, Newsweek recently ran a story about the difference between “cyclical unemployment” and “structural unemployment.” In which cyclical unemployment is the simple result of a market economy which experiences periodic ups and downs. Obviously this explanation does not entirely explain the current situation as jobs did not recover as soon as most analyst had forecasted at the beginning of the current economic debacle.
While cyclical unemployment could perhaps be the same as the jobs market getting a cold, structural unemployment would be more like tuberculosis, or something which lasts longer than the flu and is harder to cure.
Structural unemployment refers to unemployment caused, in essence, by a lack of available qualified workers. One can type of unemployment can feed into the other as people who are chronically unemployed due to cyclical unemployment don’t develop skills and on the job training that would make the employable in different fields.
It would nice if unemployment was just a structural unemployment problem, as retraining could help millions find jobs, but is this the case?
There are still many more unemployed people when compared to job openings, at least 14.9 unemployed for just 3.2 million job openings. And practically all sectors of the economy have a relative dearth of jobs. I would agree with the New York Times Paul Krugman who says that the structural unemployment is basically phony.
How do we fix the current problem?
Increased American consumerism, not just of materials objects but of things like music lessons for kids and vacations to the Grand Canyon, will pull America out of its current economic malaise. However, due to the credit crunch, foreclosures, and lack of jobs, funds that Americans would use to buy things and services are getting tied up in maintaining the status quo, a sort of financial mobius loop which is impossible to exit from.
The High Maintenance Building Analogy
For example, the analogy I like to use is that the American economy is like a really old office building which costs millions of dollars a year to keep running. There are plumbing problems, the roof leaks, a whole lot of cost repairs needed each year in this old building. If the building was new then it would cost much less, but alas, buying a new office building would cost millions more than what Americans have.
If the office building is the American economy, then the unwieldy maintenance costs are things which are not optimized for inefficiency. Things like a crumbling highway system, high gasoline prices, poor preventive health care services, and even the lack of nutritious food, all bred inefficiency.
Lack of nutritious food?
Yes, people who eat a low-cost high fat, high salt, and high calorie diet save a very small amount of money in the short term, but are saddled with higher health care expenses later on in life, work less productive lives, and eat up health care dollars which could be spent on other less preventable forms of illness. And this is a health cost which is expected to accelerate in the coming decades.
How do we fix the problem?
To fix the problem would involve either relatively large expenditures of cash, or ingenious creativity which improves efficiency at relatively small cost.
For example, during the 1950s the nation’s highway system was developed, which was expensive, yet it spawned whole new sectors of the economy and brought down the price of goods. What if somebody invented an electric car which was only $10,000 and, which costs little to run as it is plated with high efficiency solar panels, and which has little maintenance during the first twenty years of its life?
Families everywhere would over time have more money in their budget if they could buy such a car, and they could likewise travel more frequently. Suddenly music lessons for the kids on the other side of town might be feasible, or commuting to a job opening 40 miles away might be possible and provide temporary employment. And if the highways were widened, and built to last longer with less maintenance, then this would improve overall efficiency as well. Time spent sitting in traffic could be used for work.
What will happen if such inefficiencies are not corrected?
In a sense, this has happened already. Wages have stagnated for American workers over the past decade, and increasingly poor families are having problems getting by. For the wealthiest Americans it is much easier to buy fresh vegetables and fruits and to educate their children for the jobs of tomorrow. The inefficiencies being heaped upon poor and lower middle class Americans end up costing the nation more as a whole.
If the standard of living were to steadily increase for the poorest of Americans, then this would improve the lives of millions despite salaries which in real dollars are getting smaller. While the material standard of living may be increasing (you can get a flat screen television for under $400), the quality of life for poor Americans is decreasing because of health problems such as the obesity epidemic and because of an underfunded education system.
I think that the best solution for promoting long term economic growth will include investing in technologies and institutions which decrease wasted economic output, such that an environment for new innovation will be created, while standard of living and quality of life is improved for the country’s poorest.
Such solutions will likely require out-of-box creative problem solving by looking at rather mundane things that Americans do and figure out how to optimize the task being done so that it consumes a minimal amount of time, energy, and money.
Then, when Americans are paying less for necessary activities such as transportation and health care, will funds flow into new sectors of the economy which will spur new job growth.