Job seekers in San Francisco wait in line to fill out employment applications during a job fair for an area grocery store chain.Justin Sullivan
The United States has far to go to ease its jobs crisis, so far that researchers now believe the new normal is much higher than the old.
Some 14 million Americans who want to work can't find a job, and the unemployment rate is running at 9 per cent amid projections it will remain high for a long time.
Prior to the financial crisis and crippling recession, the normal or so-called natural rate of unemployment in the United States was deemed to be 5 per cent. The U.S. Congressional Budget Office now estimates what is known as the non-accelerating inflation rate of unemployment at 5.2 per cent, compared to 4.8 per cent before the slump. That's basically a jobless rate that keeps inflation in check.
But, say researchers at the Federal Reserve Bank of San Francisco, that estimate may no longer be the best guide given the "significant structural changes" or recent years.
"In the past, the U.S. labour market has proven to be very flexible and recessions have not usually been followed by long-lasting increases in the unemployment rate," wrote John Williams, the San Francisco Fed's director of research, and research associate Justin Weidner.
"But, in the wake of the most recent recession, many economists are concerned that developments such as mismatches in the skills of workers and jobs, extended unemployment benefits, and a rise in long-term joblessness may have raised the 'normal' or 'natural' rate of unemployment above the 5 per cent level that was thought to be typical before the downturn. Indeed, a few economists have gone so far as to argue that the rise in the unemployment rate to its current level of 9 per cent primarily reflects an increase in the natural rate, implying there is little slack in labour markets and therefore little downward pressure on inflation."
The two analysts looked at four alternate estimates, and came to the conclusion that the new normal is about 6.7 per cent, which is worrisome.
"Much of this increase is likely to be temporary," they wrote. "In particular, the extension of unemployment benefits probably accounts for about half the increase. But, even with a 6.7-per-cent natural rate, current and forecasted levels of unemployment imply that significant labour market slack will persist for years."
The researchers also delve into why the rate may be rising. Economists, they note, cite several possible reasons, including the extension of jobless benefits brought in at the height of the crisis in early 2009.
No comment from me here on why people can't find jobs in such an ugly environment, but the researchers not that, while extended benefits can reduce hardship, so too can they reduce the incentive to find, and take, jobs they don't like.
"Indeed, some European countries may have higher natural rates of unemployment because they offer more generous unemployment benefits than the United States.
Still another reason they cite is a growing "mismatch" between people looking for jobs and executives looking to hire.
"The construction, finance, and real estate sectors have shrunk after the bursting of the housing buggle and the subsequent financial crisis. The skills of workers who used to be employed in those sectors may not be easily transferable to growing sectors such as education and health care."
And yet a third reasons is the surge in long-term unemployment, as workers out of a job for long periods find their skills have deteriorated.