The president of the Minneapolis fed—you may remember him as the "interest rates cause inflation" guy—is now saying that the lack of employment demand is structural:
This estimate is based on a rather aggregative view of the labor market. It is important to dig deeper to get a better understanding of the problem, and there is a considerable amount of research under way exploring the quantitative importance of the various forms of mismatch. For example, the International Monetary Fund has recently released a special study based on a new state-by-state measure of the gap between demand and supply for workers with different levels of educational attainment. The study examines the impact of this variable and the foreclosure rate on state-level unemployment. It estimates that 1.5 percentage points of the national unemployment rate is due to these two sources and their interaction. Thus, according to this study, these two types of mismatch alone can account for a significant fraction of my estimate of 2.5 percentage points.A DeLong commentator named "Neal" provided the perfect response. What's the top four fields with job openings?
Good economic policy is about using the right tool for the problem at hand. The mismatch problems in the labor market do not strike me as readily amenable to the kinds of monetary policy tools currently available to the Fed.
Top 50 job openings 2008-2018An "education gap"? For cashiers? Uh, no. Over-education, perhaps. Employers may be a bit unwilling to hire highly educated people for jobs that don't even require high school, since they'll (correctly) assume that they're gone the nanosecond they get a better opportunity. But Kocherlakota isn't saying that. He's saying that there are people who are under-qualified for the available positions, and that just ain't the case if you aren't talking about health care. That's ludicrous.
1 Cashiers, except gaming
2 Retail salespersons
3 Waiters and waitresses
4 Customer service representatives
Another brings up this salient point:
Mismatch is a cruel hoax. To quote Larry Summers before the bubble burst: "Nor can education be a complete answer at a time when skilled computer programmers in India are paid less than $2,000 a month."Education doesn't help if cost of living differences overwhelm it.
And then there's Robert Waldmann, who decries Kocherlakota's confusion about structural unemployment:
The quoted passage from MinnFed is nonsense, because it is based on double counting. MinnFed first claimed that structural unemployment caused 2.5% of the difference between current unemployment and normal unemployment. MinnFed gave no theory of normal unemployment (up there it is assumed to be exactly zero and subtracting 5 % from the data is normal practice).DeLong makes it clear that he thinks the guy should be canned. He may be right. This bizarre comment and the interest rate thing just show that he's completely out of touch. If not completely out to lunch. Saying that there's a skill gap when it's Cashiers that people want is just ridiculous, and Waldmann has now called his basic economic acumen into question. I don't know what they're doing over at the Minneapolis Fed—wanking over DSGE models, I'm led to believe—but it clearly isn't anything useful.
Everyone who has ever addressed the question, identifies the natural rate of unemployment with structural unemployment, so the number to hit is 7.5% not 2.5%. Note the quote "It estimates that 1.5 percentage points of the national unemployment rate is due to these two sources and their interaction." that is "It estimates that 1.5 percentage points of the 9.6% is due to these two sources and their interaction." 1.5/9.6 1 so if you count something twice you overestimate.