Kokomo Tribune; Kokomo, Indiana

Columns

January 17, 2013

Jobless rate still is high

It took nearly all of us to make Great Recession happen.

A growing under-current of econ-omists is now warning about structural unemp-loyment (a skills mismatch) that leaves millions without jobs. This led to a question asked by one online commenter, “How did structural unemployment come about from a housing market collapse?” Good question.

The Great Recession wasn’t simply caused by a housing market collapse; it was more than that. The economic unwinding in which we still live required lots of failures. We needed home buyers willing to suspend belief over unrealistic future price growth, lenders unconcerned with creditworthiness, financial engineers unaware of changing risk profiles, a government backing large mortgage buyers, the Federal Reserve maintaining low interest rates, workers skipping out on higher education to take jobs in construction, and millions of households taking on consumer debt in the belief that their home value would rise forever. In short, it took nearly all of us to make this happen. So, it would be pretty improbable if after all of this, there weren’t a significant number of workers with skills that are no longer in demand. That is structural unemployment. The size of it today, perhaps 2 percent of our work force, is striking. There is more to the story.

The economics we learn in high school and college tends to treat the adjustment of markets as a smooth and relatively rapid process. That is true enough for some, but there’s enough imperfection in markets to cause mischief. The failures of markets have animated much economic research over the past two decades, including your columnist’s humble doctoral dissertation. So what insights might have we uncovered about great recessions and unemployment?

Suppose that financial or housing bubbles breed bubbles elsewhere. These bubbles may be in labor markets for construction workers, or in factory work for construction materials or household appliances or cars. Once one bubble bursts, the others follow suit.

First, think plate tectonics (the way continents move). Force builds as huge land masses press against one another over long periods of time, but is released in an instant. This is an earthquake. Second, think of punctuated equilibrium in evolution surmised and made popular by Stephen Jay Gould. Instead of evolution happening slowly and smoothly over time, some great stress or environmental change on species led to rapid evolutionary changes.

Either of these two phenomena can be used to explain (mathematically) why this recent shock has led to a particularly large level of structural unemployment. But we don’t really have to rely on naturalists on these matters. The economist David Ricardo wrote about this problem 44 years before Darwin and a full century before plate tectonics. What he observed is what plagues us today, many workers without the right skills facing long bouts of unemployment.

Michael Hicks is director of the Center for Business and Economic Research and an associate professor of economics at Ball

State University. Contact him at mhicks@bsu.edu.

1
Text Only | Photo Reprints
Columns
  • MAUREEN HAYDEN: Expiring term heightens urgency of legislator's mission State Rep. Rebecca Kubacki had plans for her return to the General Assembly next January.The two-term Republican from Kosciusko County wanted to exert “full force” to roll back a law that prevents the children of undocumented immigrants from paying i

    July 23, 2014

  • CECIL BOHANON: Spend down surplus? Been there, done that Back in 1998, the state of Indiana had more than $1.3 billion in surplus funds in its general account. This was about 57 days of state spending. The state had total surplus funds of more than $2 billion that was over 24 percent of its annual operatin

    July 23, 2014

  • MAUREEN HAYDEN: Expiring term heightens urgency of legislator's mission State Rep. Rebecca Kubacki had plans for her return to the General Assembly next January.The two-term Republican from Kosciusko County wanted to exert “full force” to roll back a law that prevents the children of undocumented immigrants from paying i

    July 22, 2014

  • TOM LoBIANCO: Indiana Democrats deal with divide on education On the face of it, the battles between Democratic Schools Superintendent Glenda Ritz and supporters and staff of Republican Gov. Mike Pence have been a unifying force for Indiana Democrats. But the scrapping has exposed a deep rift within the party o

    July 22, 2014

  • BRIAN HOWEY: Is Evan Bayh contemplating another gubernatorial run? This could be the saga of “LeBron Bayh.”Like a thunderhead brewing in the distance, you could see this one coming. This was the progression: former state Democratic Chairman Dan Parker announces he will not become a candidate for mayor of Indianapoli

    July 21, 2014

  • DICK WOLFSIE: Please go away already My wife is planning our summer vacation, which we will take in the fall. We took our spring vacation this summer. We got behind in 1984 and still haven't caught up. I don't have much input into the planning of these trips, but Mary Ellen did assign m

    July 21, 2014

  • ED VASICEK: Internet, and future of communication One morning, I was chatting with some retired folks and the subject of paying bills on the Internet came up. One woman said she disposed of her computer years ago and pays her bills by mail. I commented she could get by just fine doing that. The othe

    July 20, 2014

  • FAITH BRAUTIGAM: Learning from others' mistakes through literature If you’ve ever been locked out of somewhere — your home, your car, your workplace — I expect you could tell me all the details of the incident, even if it was years or decades ago. Why? Our brains remember major events, and it’s a big deal to be stra

    July 20, 2014

  • RAY DAY: We need to get tough Last year I said I was going to quit trying to do anything about the shooting off of fireworks in the neighborhoods. But as anyone who knows me can say, I don't give up on things that are of utmost danger. Here it was, a week before the Fourth of Jul

    July 19, 2014

  • LEE HAMILTON: Is this country doomed to ceaseless polarization? We Americans are trapped in a political dilemma. We all like representative democracy, but we don't much like the way it's performing. The reason for this dissatisfaction is clear. Polls in recent years detail a polarized nation, divided both ideolog

    July 18, 2014

Latest news
Featured Ads
Only on our website
AP Video
Plane Crashes in Taiwan, Dozens Feared Dead Republicans Hold a Hearing on IRS Lost Emails Raw: Mourners Gather As MH17 Bodies Transported Robot Parking Valet Creates Stress-free Travel Raw: MH17 Bodies Arrive in Netherlands Raw: Fight Breaks Out in Ukraine Parliament Disabled Veterans Memorial Nearing Completion Last Mass Lynching in U.S. Remains Unsolved Home-sharing Programs Help Seniors Ex-NYC Mayor: US Should Allow Flights to Israel Clinton: "AIDS-Free Generation Within Our Reach" Judge Ponders Overturning Colo. Gay Marriage Ban Airlines Halt Travel to Israel Amid Violence VA Nominee McDonald Goes Before Congress US Official: Most Migrant Children to Be Removed Police Probing Brooklyn Bridge Flag Switch CDC Head Concerned About a Post-antibiotic Era Courts Conflicted Over Healthcare Law Raw: Truck, Train Crash Leads to Fireball
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.
Obituaries
Poll
Kelly Lafferty's video on Tom Miller