Here’s another view on a key question for the U.S.: how much of the stubbornly high unemployment rate represents structural issues rather than simply an economy bumping along at a too-low growth rate to absorb new entrants and make a dent in those already out of work.
First, some fast background. In late August, we cited a couple of expert views of the structural problems contributing to the morass. Manpower Inc., the temporary employment firm, released a global survey that cited an acute shortage of skilled production workers in many advanced-economy countries, including the U.S. and Germany.
Meanwhile, Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said a skills mismatch might account for up to one-third of the joblessness reflected in the 9.5% U.S. unemployment rate. The Fed “does not have the means to transform construction workers into manufacturing workers,” he said.
So, when Federal Reserve Bank of St. Louis President James Bullard last week joined editors and reporters of Dow Jones Newswires and The Wall Street Journal for a conversation about monetary policy and the economy, it seemed reasonable to ask his view of the structural employment issue.
“At least some part of unemployment is structural,” Bullard said. The debate is about how much.
Bullard blamed the housing bubble.
The years-long, unsustainable escalation in housing prices did more than spark a global credit crisis, leading to deep recession. Bullard said it also led to a misallocation of resources for up to a decade, as workers across the country jumped into the construction boom and related employment streams, developing skills in areas where the demand has all but vanished.
And it wasn’t limited to construction workers or mortgage loan officers. Ripple effects would have included trucking companies whose businesses became too dependent on shipping housing related goods, to cite one example given by Bullard.
As for housing generally, Bullard said the bubble “has deflated.” That likely won’t mean any near-term gains in housing prices, Bullards said, but he added it was hard to see house prices going down a lot more from the low levels to which they already have sunk.