Structural Or Cyclical? The Type Of Unemployment Matters

Every week, the Department of Labor issues data detailing the number of people who filed for unemployment benefits in the previous week. According to Thursday's report, 385,000 people filed last week, the third weekly increase in a row, and a higher figure than expected. Robert Siegel talks with Adam Davidson about this week's initial claims report. Davidson says the report can help illuminate the vital question of whether the United States has a cyclical or a structural unemployment problem.

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ROBERT SIEGEL, HOST:

Three hundred eighty five thousand Americans filed for unemployment benefits last week. That number, announced today by the Labor Department as it is every week, and the number is up, an increase of 28,000 people.

Adam Davidson of our Planet Money team follows this number closely. He says it might help answer one of the most important questions facing our economy right now. What kind of unemployment crisis do we have? Adam joins us from New York. Hi, Adam.

ADAM DAVIDSON, BYLINE: Hi, Robert.

SIEGEL: And what do you mean, what kind of crisis? Isn't it clear that unemployment's near 8 percent and that's obviously too high?

DAVIDSON: Yes, but there is a huge debate among economists and policymakers over what is the nature of this unemployment crisis. The keywords here are cyclical or structural; these are very different types of unemployment crises and let me explain.

We want it to be cyclical, that means it's simply a byproduct of the business cycle; the economy went into recession, it's growing very slowly but growing. And when it reaches normal, whatever that is, we get unemployment way down. You know, somewhere maybe south of 5 percent.

If it's structural, though, that means the economy has fundamentally changed; that there is a complete mismatch between the kinds of jobs people are trained to do and the kinds of jobs employers want to hire them for. So if this is a structural crisis that means millions of Americans are likely to be unemployed or underemployed for many, many, many years to come.

SIEGEL: Well, Adam, explain how that happens. What would change the very structure of employment so much?

DAVIDSON: There's a few different theories. One is that because of computer technology and global trade, the U.S. economy has been completely disrupted. Bedrock jobs are gone, particularly in manufacturing, and they're not coming back.

Another idea is that because of the housing bubble, so many people went into construction. They became skilled plumbers and electricians and carpenters. They've been out of work for years and it's now, you know, 10 years further on and they're unlikely to be able to get trained in the kinds of jobs that will be in demand. That's the theory, anyway.

SIEGEL: So today's headline number: 385,000 Americans filing for unemployment benefits. When you parse that a bit, what do the numbers tell us?

DAVIDSON: Well, the headline is definitely bad news. This means there were more people last week filing for unemployment claims than a week before. And we don't want to see that, obviously. But there is some good news deeper in the numbers, which is that unemployment seems to be appearing throughout the economy. We see it in the retail sector and wholesale sales and government jobs and professional jobs, as well as those more structural areas - construction and manufacturing. And that's certainly what we saw in today's report, as well.

That suggests if it's that broad-based that it's more likely to be a cyclical unemployment crisis. And just to remind you, that's the one we want it to be.

SIEGEL: Well, beyond the analysis and hoping that the answer is cyclical rather than structural, how important is this? What would be the different policy moves we would take in response to a structural unemployment rate, as opposed to a cyclical one?

DAVIDSON: You respond to them fundamentally differently. If it is a structural problem, there isn't much you can do in the short-term. All you can do is try and train as many workers as possible in the kinds of jobs that will be in demand. If it's cyclical, though, you have a whole host of policy interventions. You know, many economists would say you could have a stimulus; you could have infrastructure spending. That kind of gooses the economy back to normal, and that would solve the unemployment crisis right there.

Now, many economists will tell you the clock is ticking, because what we know is a cyclical crisis can become a structural crisis if it lingers for too long. The idea is once people have been unemployed for years - and millions of Americans are in that position - they become unemployable effectively. And so, if you allow a cyclical crisis to linger for too long you have yourself a structural crisis.

SIEGEL: And tomorrow we'll see the monthly numbers for unemployment in March. Perhaps we'll know more, right?

DAVIDSON: We will know a lot more tomorrow.

SIEGEL: OK. That's Adam Davidson of NPR's Planet Money team. Thank you, Adam.

DAVIDSON: Thank you, Robert.

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