Wednesday, October 03, 2012

Brad DeLong warns about the particular threat of long-term unemployment

Economist Brad DeLong in Long-term unemployment: the next threat to the world economy Guardian 08/02/2012 reminds us of the damaging economic effects of widespread long-term unemployment, to the economy as a whole as well as to the individuals directly affected:

At its nadir in the winter of 1933, the Great Depression was a form of collective insanity. Workers were idle because firms would not hire them; firms would not hire them because they saw no market for their output; and there was no market for output because workers had no incomes to spend.

By that point, a great deal of unemployment had become long-term unemployment, which had two consequences. First, the burden of economic dislocation was borne unequally. Because consumer prices fell faster than wages, the welfare of those who remained employed rose in the Great Depression. Overwhelmingly, those who became and remained unemployed suffered the most.

Second, reintegrating the unemployed even into a smoothly functioning market economy would prove to be very difficult. After all, how many employers would not prefer a fresh entrant into the labor force to someone who has been out of work for years? The simple fact that an economy had recently undergone a period of mass unemployment made it difficult to recover levels of growth and employment that are often attained as a matter of course.
Now, I have some reservations about arguments that we will face "structural" unemployment, i.e., jobs not able to find qualified workers, because conservatives currently use that as an excuse to oppose government economic stimulus. The current problem in the US economy is inadequate demand, which in a technical sense could be easily remedied with the right kind of stimulus. It's politics - and seriously deficient economic ideology - that are blocking that solution.

But the long-term unemployment problem is a very real one.

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