Is The Long Economic Expansion Showing That Cyclical Unemployment Has Been A Bigger Problem In Recent Years Than Structural Unemployment?

Here are the definitions of two types or causes of unemployment:

Structural-unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs.

One example of this is when you are replaced by a machine. Another example is when there is a fall in demand for your product, so you get laid off, like with typewriters since people now use computers. A third example is geographical, when the jobs are not in your region of the country.

Cyclical-unemployment caused by a fall in GDP. This comes from the idea of the business cycle. We assume that when GDP falls, the unemployment rate goes up (companies need fewer workers since their sales have fallen). And that when the GDP rises, the unemployment rate goes down. 

See A Record Expansion’s Surprise Winners: The Low-Skilled-As unemployment remains near generation lows, the fortunes of low-wage workers have improved markedly by Greg Ip of The WSJ. Excerpts:

"For years, falling wages and high unemployment seemed proof that low-wage workers needed an entirely new set of skills to succeed in an economy shaped by technological change and globalization.

It turns out what they needed most was time. As the economic expansion reaches a record age and unemployment remains near generation lows, the fortunes of low-skilled workers have turned up markedly. What looked like a permanent setback may be mostly cyclical.

Much of the debate over helping these workers revolves around the minimum wage, training and higher education. Low unemployment may deliver the most effective remedy of all."

"the share of people aged 25 to 54 years with at least a college degree who were employed dropped 2.5 percentage points between 2008 and 2010. It then began a steady recovery, and by last year was close to its prerecession peak. For workers with just a high-school diploma or less, the ratio plunged 6 percentage points and didn’t begin a sustained recovery until 2014."

"Adjusted for inflation, wages of workers with just high school or less initially fell much more sharply than for college-educated workers and then bounced back more strongly, and by last year had recovered all the lost ground."

"The traditional explanation for why some workers are fired first and hired last is that employers hoard their most valued and difficult-to-replace workers. New data offer a more nuanced explanation: employers and workers change their recruitment behavior over the course of the cycle.

In a 2016 study, Alicia Sasser Modestino of Northeastern University and two co-authors observed that as unemployment soared between 2007 and 2010, the percentage of job postings requiring a bachelor’s degree on Burning Glass, a website that aggregates job postings, rose more than 10 percentage points. That share then fell over the next four years. The same thing happened with postings requiring at least five years’ experience."

"This wasn’t because high-skilled occupations or industries had become more important; the authors found that even within the same company posting the same job, hiring criteria became tighter as unemployment rose and easier as it fell."

"This suggests that when unemployment is high and labor is plentiful, employers opportunistically “upskill”—they raise the requirements of jobs, for example demanding a bachelor’s degree when an associate’s degree or experience used to be sufficient.

"This reverses when the labor market tightens. This, the authors say, counters the theory that high vacancies coexist with high unemployment because unemployed workers had the wrong skills: “A significant portion of what is sometimes labeled as structural mismatch unemployment is actually cyclical.”

A related cause: college graduates may take less-skilled jobs when unemployment is high, displacing less-educated workers."

(Hat tip: Chris Baecker)

Related posts:

Which Type Of Unemployment Is The Biggest Problem? (2012)

Structural Unemployment In The News (2017)

Structural Unemployment In The News (2009)

Untangling the Long-Term-Unemployment Crisis (2011)

Some Reasons Why Firms Are Not Hiring (2011)