03 Sep Fixing Unemployment – Except There is No Quick Fix
The Organisation for Economic Co-operation and Development (OECD) is out with their new Employment Outlook and – as these things go – it is a fairly upbeat piece in that they do see the big picture improving, particularly in countries like Canada. Beyond the big picture though, the OECD has some fairly serious concerns about long term unemployment, worldwide but in Canada as well.
To me, the most salient point from the OECD report is that the world’s unemployment one is a cyclical one, not a structural one. ‘Cyclical’ unemployment is basically what happens when economies slow or go into a recession. Companies lose revenues, and they cut back workers. That’s not good, but presumably downturns eventually end, the business cycle heads up, and people get those jobs back – if the correct policies are employed.
The challenge, of course, is to figure out policies that boot the economy out of the downturn. Typically, that means low interest rates and maybe higher government spending (as we saw during 2008 and 2009). Finding the right combination can be difficult and governments and central banks certainly make mistakes, but it if you have the choice you really want to be experiencing cyclical, not structural unemployment.
Structural unemployment means you lose your job because no one needs your skills anymore. Maybe you are a master milliner, and everyone has given up on wearing hats. Maybe you make buggy whips, and now everyone drives cars. Or maybe you are a newspaper journalist, and newspapers are going broke all over the place. It is not quite that easy for a government to fix structural unemployment . You cannot order people to make hats, so what you have to do is help transition people into new careers. Arguably, governments are not great at that either, but the OECD urges them to try.
The OECD also makes an interesting point by suggesting that if governments around the world do not do more to fix cyclical unemployment, they might find that it has turned into structural unemployment. That is, once companies get used to not having certain kinds of workers around, they might never hire them back at all. That would cause all kinds of long term issues, from income distribution issues through to social unrest.
In the end, the OECD is calling for the same kinds of policy prescriptions we have been hearing for years. They urge Europe to cast aside fiscal austerity and spend more, which would be a pretty tricky thing to do. The only way many European countries could spend would be through gigantic deficits, for which they would be punished mightily in the financial markets. That would mean ever-higher government interest costs, which would squeeze money from other spending priorities once again.
In a separate report covering Canada, things are considerably more upbeat, with the OECD noting that Canada is enjoying a fairly solid labour market recovery. Like other countries, however, Canada has a problem in that long term unemployment – those who have been without work for a year or more – was over 12 percent of all unemployment. Although that is certainly better than the OECD average, this figure was only a little above 7 percent during the 2008/09 period.
The OECD seems to be making the assumption that long-term unemployment in Canada is structural in nature, and suggests that Canada and other countries deal with the problem by a host of means, including re-training and one-on-one counseling. If those things work fine, but the evidence is pretty mixed on that.
The best outcome? Figuring out policies that attract investment, boost productivity, create new jobs, and blast away unemployment. Those are not quick-fix solutions but they are the only ones that will ultimately work against a complex problem.