Monday, November 9, 2009

The Structure Has Changed

Over the weekend, I ran across a short article at, the site of The American Enterprise Institute. It was relevant, because my class had only recently discussed the types of unemployment and we're about to delve into policy impact on economic problems.

The piece, by Arnold Kling of George Mason University, contends that the fiscal policy approaches advocated by John Maynard Keynes may not be appropriate for the current economy - largely because the current system is structured differently.

That relates to what we've been talking about and what we will be talking about in class. Policies to address cyclical unemployment should be different from policies that affect structural unemployment. And most economists would agree that frictional unemployment is a good thing.  The Great Depression was mostly a cyclical downturn but very large. There were some structural aspects. The current recession is what? Cyclical? Structural? How much of each? And even if we contend that it is largely cyclical, the structure of the current economy is different. The institutional aspects that set up various incentives are vastly different after 70 years. Consequently, stimulating manufacturing and agriculture will not have the effect it did in the 1930s, while stimulating services of various kinds will also be different.

What are your thoughts?


Mike Fladlien said...

I would like to add that the minimum wage, hysterisis, unemployment benefits, shifts from manufacturing to service business, unions, and insider/outsider problems all contribute to structural unemployment. Some of these problems cannot be legislated.

The data shows that a small percent of the unemployed contribute to the most weeks of unemployment. These are the cronically unemployed. I think policies should focus on removing institutional barriers to matching job seekers to work.

I further think, that the composition of the work force has changed. Women are in more professional positions that are not cyclical. So I would agree that the structure has changed.

I've digressed.

Tim Schilling said...

You're right. And several of those items you mention are part of the institutional structure that impact our choices.

They were unintended consequences, but they have changed our choices because we know they are part of the fabric.

Thanks for commenting, Mike. Always a pleasure.

Rdan said...

I am a little lost here regarding Mike's list. Is he saying the list makes up the major portion for structural unemployment? It is implied from my reading of his comment.

BLS data....can a link be provided? Certainly not in the last decade.

Third, women tend to take service jobs, and the male blue collar worker has taken the change on the chin. But why has a two earner family become necessary? etc.

Please provide a context for kids. Other wise we tend to propaganda.

Tim Schilling said...

I don't see a statement or an implication that it is the major portion.

I hope he revisits and provides what you're asking for.