In our sporadic, somewhat random, review of commentary about the level of structural unemployment in the U.S., we’ll add some recent comments from Jeremy Grantham of the fund management firm GMO.
They were part of Grantham’s well-reasoned and clearly presented jeremiad at perceived policy overreach by the Federal Reserve, which he maintains doesn’t result in long-term benefits to the economy and creates eventually harmful asset price bubbles.
A reminder about why the debtae on the nature of the high unemployment rate in the U.S. is important. The bigger the portion of the 9.6% unemployment due to structural issues – skills mismatch, geographic mismatch, etc – the less that monetary policy can do to solve the jobless issue, even if all the Fed’s quantitative easing plans work fully as intended. That in itself is a big if…
According to Grantham, by 2007 overbuilding in the housing industry drew about one million additional workers to the sector. The view that housing artificially decreased the unemployment rate has been heard before, but Grantham adds some twists.
He reasons that many of the “lightly skilled” workers drawn to housing would otherwise have fallen victim to another structural unemployment problem caused by increased globalization between 2002 and 2007. Less-skilled work went to lower-wage nations.
“With the housing bust, construction fell below normal and revealed this large increment in structural unemployment,” Grantham recently wrote. “Since these particular jobs may not come back, even in 10 years, this problem may call for retraining or special incentives.”