April 26, 2011
UW Conference on Long term unemployment in industrial countries
This Thursday, the La Follette School and the UW Center for World Affairs and the Global Economy is holding a conference on "Long term unemployment in industrial countries: Causes, Consequences and Policy Responses". In a timely report, the OECD last week released Persistence of High Unemployment: What Risks? What Policies?. From the report:
Nearly two years after production began to recover from the worst recession to have hit OECD countries since the 1930s, the labour market situation remains a major preoccupation. At the end of 2010, the average OECD unemployment rate was still close to the historical peak reached during the crisis. In 12 OECD countries it remained two percentage points or more above the pre-crisis level, and even where the rise in joblessness was less severe, the recovery has been generally too weak so far to allow for a significant fall in unemployment.
Countries with high unemployment levels and a high share of longterm unemployment face a higher risk of unemployment persistence during the recovery:
- Before the crisis, relatively weak flows into and out of unemployment as well as high long-term unemployment continued to be observed in large continental EU countries, while pre-crisis turnover was stronger and long-term unemployment lower in North America, Australia and New Zealand.
- However, a striking feature of the current situation is an unusually high share of long-term unemployment in the United States, occurring against the backdrop of a sharp rise in unemployment and a trend decline in outflows from unemployment. While the US outflow rate remains significantly higher than in continental EU countries, and although the US unemployment rate has begun to decline, such developments raise concerns about future persistence of unemployment.
Here is a figure from the report, illustrating how long term unemployment has become more pronounced in the wake of the Great Recession.
Figure 4 from Persistence of High Unemployment: What Risks? What Policies?
Here is the agenda for the conference:
Conference on Long term unemployment in industrial countries: Causes, Consequences and Policy Responses
April 28, 2011
The Great Recession has sparked a debate over the key causes of the surge in unemployment in the industrial countries. One camp argues that the largest component of new unemployment in the United States and other advanced economies arises from cyclical factors, namely the sharp decline in aggregate demand in the wake of the global economic crisis. Another camp views the bulk of the increase in unemployment as structural in nature, arising either from a mismatch between labor skills and the skills demanded by employers, geographical mismatch, or the rising relative cost of labor. Still others argue that government policies have exacerbated these economic trends and contributed to the persistence and severity of the unemployment problem in the industrialized countries. In any case, elevated levels of long term unemployment are likely to persist for the foreseeable future, posing a series of challenges to policymakers throughout the industrialized world. In this conference, we aim to analyze the economic and political causes and consequences of long-term unemployment, as well as the potential policy responses that governments might pursue to address this problem in the coming years. The audience for the morning session will encompass both the general public and the UW community, while the afternoon sessions will be particularly of interest to UW students and faculty.
Open session: Alumni Lounge
9am-11am. Panel - Long term unemployment in industrial countries: Causes, Consequences and Policy Responses
- Moderator: Tim Smeeding, Director, IRP, and La Follette, UW
- Panelist: Prakash Loungani, Advisor, Research Department, IMF
- Panelist: Kenneth Scheve, Professor of Political Science, Yale
- Panelist: Phillip Swagel, Professor of Public Policy, U.Maryland, and former Asst. Secretary of Treasury for Economic Policy
- Panelist: Rob Valletta, Research Advisor, Federal Reserve Bank of San Francisco
1:30pm-3pm. Session 1: Politics, and Policy (in conjunction with the Political Economy workshop)
- Chair: Mark Copelovitch, Political Science and La Follette, UW
- Presenter: Kenneth Scheve, Political Science, Yale University: "Envy and Altruism in Hard Times".
- Discussant: David Weimer, Dept. of Political Science and La Follette, UW
- Presenter: Phillip Swagel, Public Policy, U. Maryland, and Kenneth Troske, Economics, U.Kentucky, "Training: A Proposal".
- Discussant: Carolyn Heinrich, La Follette, UW
3:30pm-5pm. Session 2: Identifying the sources of long term unemployment
- Chair: Tom Deleire, La Follette and Population Health, UW
- Presenter: Prakash Loungani, IMF: "Cyclical versus structural unemployment"
- Discussant: Daniel Aaronson, Federal Reserve Bank of Chicago
- Presenter: Rob Valletta, Federal Reserve Bank of San Francisco: "Rising Unemployment Duration in the United States: Composition or Behavior?"
- Discussant: Rasmus Lentz, Dept. of Economics, UW
More on structural/cyclical issues here:    . Assessing the Austrian view: . Former CEA Chair Romer's op-ed on long term unemployment. Nobel Laureate (and Fed Governor nominee) Peter Diamond's Nobel Prize Lecture here.
Posted by Menzie Chinn at April 26, 2011 08:00 AMdigg this | reddit
There has been a shift in economics from one based on material scarcity to a new condition of material abundance on an unprecedented scale. When global output reaches staggering capacity it plays havoc with labor and finance based on scarcity. Until this condition is acknowledged one will get plodding documents from the conference referenced above. Not to worry though the best and brightest are earnestly striving for a return to scarcity.
Posted by: brad at April 26, 2011 10:49 AM
Here is probably a better Austrian analysis.
As Bob Murphy puts it, "We therefore see an eerie pattern. When it came to both fiscal and monetary policy during the early 1930s, the governments and central banks implemented the same strategies that the sophisticated experts recommend today for our present crisis. Of course, today’s Keynesians and monetarists have a ready retort: They will tell us that their prescribed medicines (deficits and monetary injections, respectively) were not administered in large enough doses. It was the timidity of Hoover’s deficits (for the Keynesians) or the Fed’s injections of liquidity (for the monetarists) that caused the Great Depression.
This context highlights the importance of the 1920–1921 depression. Here the government and Fed did the exact opposite of what the experts now recommend. We have just about the closest thing to a controlled experiment in macroeconomics that one could desire. To repeat, it’s not that the government boosted the budget at a slower rate, or that the Fed provided a tad less liquidity. On the contrary, the government slashed its budget tremendously, and the Fed hiked rates to record highs. We thus have a fairly clear-cut experiment to test the efficacy of the Keynesian and monetarist remedies.
Posted by: Ricardo at April 26, 2011 12:19 PM
For a really hard hitting supply side commentary on unemployment try Ralph Benko's article at Forbes.com. Sorry there is not much Sudoku here.
The progressive fairy tale ... casts conservatives as miserly creatures looking to squeeze every ounce of work from the sweet, vulnerable, working class at bare ... subsistence wages.
... That’s all fairy tale. It’s the progressives who have proved too willing to sell out the workers in return for elevating the liberal elites. Conservatives stand for real jobs, more jobs and better jobs. According to the supply side’s narrative the last time we were in power, with Reagan, we formulated and implemented a policy of a strong dollar and lower tax rates. That policy mix, of which gold is an improvement, quickly generated 20 million jobs. The nice thing about our fairy tale is… it’s true.
Posted by: Ricardo at April 26, 2011 12:40 PM
I hope the conference talks about cooperatives. The member-owners of a cooperative do not lose their jobs in a recession.
Also, wages are more equal, and the cooperatives are still able to accumulate more savings for investment.
Posted by: Edward Lambert at April 26, 2011 12:42 PM
"The nice thing about our fairy tale is… it’s true."
To paraphrase LB, it is easy if you are writing hot checks.
Posted by: steve at April 26, 2011 04:52 PM
I don’t see Germany on this chart.
According a study published March 21, 2011 by ILO, Germany has the most long-term unemployment among industrial countries.
The low-wage sector extends in Germany. The “Kurzarbeit” is going to be the rule than the exception.
Posted by: Cezmi Dispinar at April 27, 2011 12:51 AM
Cezmi Dispinar: There is another chart for countries where long term unemployment has declined. See the OECD report that is linked to.
Posted by: Menzie Chinn at April 27, 2011 11:29 AM