WASHINGTON (MNI) – The following is the third of four sections of
the remarks of Federal Reserve Chairman Ben Bernanke prepared Monday for
the National Association of Business Economists:

A pessimistic view is that a large share of the unemployment we are
seeing, particularly the longer-term unemployment, is structural in
nature, reflecting factors such as inadequate skills or mismatches
between the types of skills that workers have and the skills that
employers demand. If this view is correct, then high levels of long-term
unemployment could persist for quite a while, even after the economy has
more fully recovered. And it appears true that over the past two decades
or so, structural factors have been responsible for some increase in
long-term unemployment. For example, because an older worker who loses a
job typically takes longer to find a new job than does a younger worker
in the same situation, the aging of the baby boom generation has
probably contributed to a gradual rise in long-term unemployment.
Factors such as globalization, technological change, and the loss of
lower-skill manufacturing jobs have likely reduced the employability and
earnings potential of some groups of workers. To the extent that higher
rates of unemployment, especially long-term unemployment, result from
structural factors, the scope for countercyclical policies to reduce
unemployment would be impaired, and the benefits of a more complete
economic recovery for many workers who are unemployed or discouraged
would be more limited.

However, although structural shifts are no doubt important in the
longer term, my reading of the research is that, at most, a modest
portion of the recent sharp increase in long-term unemployment is due to
persistent structural factors.7 Consider, for example, rates of job
finding by those unemployed for varying amounts of time (figure 13).
Unsurprisingly, the rate at which the long-term unemployed find work is
lower than that of those who have been unemployed for only a short time;
on average over the period from 1994 to 2007, a bit more than one-third
of those already unemployed for one to four weeks found employment
within the next month. In contrast, over that same period, only about
one-sixth of those already unemployed for more than 27 weeks managed to
find a job within a month.

If the recent increase in long-term unemployment were being driven
by structural factors rather than, say, the severity of the recession,
then the job-finding rates of the long-term unemployed should have
fallen sharply relative to those out of work for only a few weeks. But
thats not what were seeing. Rather, as figure 13 shows, the job
finding rates of the more recently unemployed and the long-term
unemployed all fell over the recession in roughly the same proportion,
and they remain low.8 This pattern is consistent with cyclical factors
accounting for the bulk of the recent increase in long-term
unemployment. Similarly, the fact that labor demand appears weak in most
industries and locations is suggestive of a general shortfall of
aggregate demand rather a worsening mismatch of skills and jobs.
Counterexamples like the energy boom in the upper Midwest, where there
may be some mismatch in the geographic location of suitably skilled
workers or an overall shortage of potential workers with relevant
skills, might best be interpreted as the exceptions that prove the rule;
a mismatch story would suggest that strong labor demand would be
appearing in more sectors or geographical areas by now. An empirical
relationship that economists have long used to interpret developments in
the labor market is known as the Beveridge curve (figure 14). That
curve–named after the British economist William Beveridge–compares
unemployment (the number of workers looking for employers) to job
vacancies (the number of workers that employers are seeking). In good
times, when the unemployment rate is low, businesses are growing and
workers are harder to find, so job vacancies tend to be high.

Similarly, in bad times, unemployment is high and few jobs are
available (vacancies are low). Thus, the Beveridge curve, the
relationship between unemployment and vacancies, is downward sloping.

-more- (3 of 4)

** Market News International Washington Bureau: 202-371-2121 **

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