Friday, February 18, 2011

Structural unemployment III - Skills

Another argument proposed by advocates of structural unemployment is as follows - this is the so-called zero marginal product workers argument, which runs roughly as follows:

Workers were laid off during the recession but over time output and profits have rebounded with not gain in employment (or decrease in unemployment). It is a structural-based argument because these workers who were hired during the boom times were not really needed and are generally low-skilled. Now that times are lean, firms have learned how to do without them and thus are unlikely to be re-hired.

This argument has some merit if the measure of skill is education. But it isn't - skill is not the same as education. It is possible to broaden the definition of structural to include education and if it is the case then structural unemployment advocates have a point in believing that AD-based policies will be less effective since the prescription calls for a more educated work force which takes time.

However, it remains to be seen if the unemployment rates of the less educated in this recession are indeed higher than in the previous recession and whether they are indeed less likely to be hired during the recovery phase.

No comments: