History Repeating

September 26th Paul Krugman published an article in the International Herald Tribune called "Structure of Excuses". It is a good read on the arguable myth of structural unemployment, providing links to two interesting papers on the topic, one from the Roosevelt Institute, another from the Economic Policy Institute.

The Financial Times October 8th issue hosted an article titled "A structural problem that may be here until 2015". The article refered to an analysis economists at the International Monetary Fund produced to explain the surprising differences in the unemployment levels after the crisis (e.g. US close to its postwar high, Germany at its lowest since the early 90s). They offered three chief explanations:

1. Firstly, the obvious one of the various degrees of recession in each country.
2. The second is "thought to be the combination of a fall in demand and acute problems in particular parts of the economy - especially finance and housing." This would help explain for example the US unemployment levels.
3. Lastly, "countries that used active labour market policies such as government-sponsored short-time working schemes, saw smaller increases in unemployment."

If the first paradox is the lack of a correlation between crisis and unemployment, a second could be the broken correlation between unemployment and availability of talent. A July 2010 IMF paper, reviewed what is branded as the Skill Mismatch index: "The index captures how shrinking industries contribute to the swelling of a particular skill set among the unemployed, which may not necessarily be absorbed by expanding industries." The index would help explain how rising unemployment rates do not necessarily make hiring more easy.

It is not a new thing either. Krugman recounts: "Unemployment cannot be brought down rapidly", declared one 1935 analysis, "because the work force is unadaptable and untrained. It cannot respond to the opportunities which industry may offer." Talent pressures in a recessionary environment as far back as 1935 ... and we fancy ourselves so avant-garde in spotting these ironies.