Weak Growth Main Cause for High Unemployment, Lazear Say

Weak economic growth is the main cause of high U.S. unemployment rather than fundamental labor market weaknesses such as inadequate worker training, according to former Council of Economic Advisers Chairman Edward Lazear.

Labor market data don’t offer “any compelling evidence that there have been changes in the structure of the labor market that are capable of explaining the pattern of persistently high unemployment rates,” Lazear said in a paper presented today at the Federal Reserve’s annual meeting of global central bankers in Jackson Hole, Wyoming. He co-wrote the paper with James Spletzer of the Census Bureau.

With 5.2 million Americans out of work for at least six months, policy makers are monitoring labor markets to gauge the proportion of workers who face declining odds of ever finding a job because of eroding skills. Federal Reserve Chairman Ben S. Bernanke, lamenting the suffering caused by unemployment of more than 8 percent, yesterday made the case for further monetary easing.

“The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years,” Bernanke said at Jackson Hole. “The rate of improvement in the labor market has been painfully slow.”

Lazear, an economics professor at Stanford University’s Graduate School of Business in Stanford, California, led the Council of Economic Advisers for President George W. Bush from 2006 to 2009. Spletzer is principal economist at the Census Bureau’s Center for Economic Studies in Suitland, Maryland.

More Pronounced

Unemployment, which has persisted above 8 percent since February 2009, stems mostly from “cyclic phenomena” that are more pronounced after the last recession than in prior contractions, Lazear and Spletzer said in the paper presented at the Kansas City Fed’s annual economic policy symposium.

The joblessness isn’t structural because data show that industries such as construction, manufacturing and retailing that had the biggest losses during the recession have gained the most jobs since the recovery began in 2009, the economists wrote. The 18-month recession that ended in June 2009 was the longest contraction since the Great Depression.

The labor-market gains during the recovery mirrored the losses as the economy shrank, the economists said. The same was true for mismatches between job vacancies and those unemployed in an industry or occupation, they said.

Industrial Mismatch

“Industrial mismatch rose substantially during the recent recession, but retreated just as quickly even as unemployment rates have remained high,” the economists wrote. “What happened on the way up happened symmetrically on the way down.”

Unemployment rose to 8.3 percent in July, the same level as January, even as companies added 163,000 workers during the month. The pace of payroll growth slowed to an average of 73,000 a month in the second quarter from 226,000 in the first quarter.

The average duration of unemployment increased to a record 41 weeks in November and remains at 39 weeks, according to Bureau of Labor Statistics data. Those jobless for six months or longer made up 41 percent of the total.

“The ratio of long-term unemployed to total unemployed is higher than it was in prior recessions, including recessions with comparable unemployment rates,” the economists wrote. “This is not due to any observed structural change, but rather to the depth of the current recession.”

To contact the reporter on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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