38912985 structural unemployment oct2010
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October 07, 2010
E co n o m i cs Gr o u p
John Silvia, Chief Economist [email protected] 704-374-7034
Anika R. Khan, [email protected] 704-715-0575
Job Seekers Ratio by IndustryRatio - Unemployed / Job Openings, Recovery: 2001 vs. 2009
20.1
6.8
5.2
2.7
2.7
4.5
10.9
5.4
3.2
1.9
0.8
2.4
0.0 5.0 10.0 15.0 20.0 25.0
Construction
Manufacturing
Trade, Transportation,and Utilities
Professional andBusiness Services
Education and HealthServices
Leisure andHospitality
2001 Recovery2009 Recovery
As of July 2010(2001 recovery is based on
13 months into the expansion)
Peak Unemployment Rate by Industry
Percent, NSA, Recession: 2001 vs. 2007
13.0%
10.5%
11.3%
14.2%
6.7%
12.4%
14.0%
7.4%
6.9%
6.6%
10.0%
4.4%
9.1%
27.1%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Construction
Manufacturing
Wholesale & RetailTrade
Trans. and Utilities
Leisure & Hospitality
Edu. and HealthServices
Prof. and BusinessServices
2001 Recession2007 Recession
Our Two Cents on Structural UnemploymentIn August, the unemployment rate rose to 9.6 percent, but it has beenstubbornly around this elevated level or higher for well over a year.Economists and policymakers have been engaged in heated debates aboutthe underlying cause for the sustained levels of joblessness. Much of thediscussion has focused on structural unemployment. Structural
unemployment suggests there is a fundamental mismatch in the number of people who want to work and the number of jobs that are available for theirskills. The presence of structural unemployment means there are no easy fixes and any recovery in the labor market could be agonizingly slow.Structural Unemployment by Industry If we look at the number of unemployed workers to job openings by industry, we find the ratio of job seekers seems to be in line with theprevious recovery. The construction industry, however, is a clear outlier with more than 20 unemployed workers qualified for each job opening, which is almost twice the number of job seekers from the previousexpansion. Even the manufacturing sector, which was also hard hit,remains roughly in line with the previous expansion at almost sevenunemployed workers per job opening. This suggests there are signs of
structural unemployment in the construction industry where workers skillsare not easily adaptable elsewhere. Another way to determine whetherskills match is to compare the peak unemployment rate in the currentrecession to the 2001 recession. Again, the construction sector is anobvious outlier with the peak unemployment rate reaching a staggering 27percent, which is almost double the peak rate in the previous downturn.
A Closer Look at Construction JobsHow can we further check the existence of structural unemployment in theconstruction sector? Wage rigidity is yet another way to test for structuralunemployment. Sticky wages occur when firms ration scarce jobs, and wages adjust sluggishly to the supply and demand of labor. Nominalconstruction average hourly earnings grew at a fairly consistent clip beginning in 2006 when the series began. Since the start of the year,
earnings appear to have flattened in real and nominal terms, which couldsuggest some wage rigidity. To be sure, we would need to see theconstruction industry recovering without an improvement in employment. As we are only a little more than a year into the recovery, such analysis isstill too premature; the cause could be cyclical versus structural. If there isindeed an issue of structural unemployment, what is the impact?Construction jobs make up only 4.3 percent of the overall labor market, soany impact would be limited. The loss of skills, however, by the 2.1 millionconstruction workers during the downturn is an obstacle to growth.
Construction Average Hourly EarningsIn Dollars, Real (CPI Adj.) vs. Nominal, Seasonally Adjusted
$21.0
$22.0
$23.0
$24.0
$25.0
$26.0
2006 2007 2008 2009 2010$21.0
$22.0
$23.0
$24.0
$25.0
$26.0
Real Average Hourly Earnings: Aug @ $25.2Nominal Average Hourly Earnings: Aug @ $25.2
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Structural Unemployment: Fact, Fiction or Too Early to Tell? M u c h h a s b e e n d i sc u s s ed a b o u t t h e o b s t i n a t e ly h i g h u n e m p l o y m e n t r a t e . I s s t ru c t u r a l u n e m p l o y m e n t t h ea n s w e r ? A n i n d u s t r y a n a l y s i s s h o w s n o b r o a d - b a s ed e v i d e n c e, b u t i t m a y b e t o o e a r ly t o t e ll .
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Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg Global Head of Research& Economics
(704) 715-8437(212) 214-5070
John E. Silvia, Ph.D. Chief Economist (704) 374-7034 [email protected]
Mark Vitner Senior Economist (704) 383-5635 [email protected]
Jay Bryson, Ph.D. Global Economist (704) 383-3518 [email protected] Anderson, Ph.D. Senior Economist (612) 667-9281 [email protected]
Eugenio Aleman, Ph.D. Senior Economist (612) 667-0168 [email protected]
Sam Bullard Senior Economist (704) 383-7372 [email protected]
Anika Khan Economist (704) 715-0575 [email protected]
Azhar Iqbal Econometrician (704) 383-6805 [email protected]
Ed Kashmarek Economist (612) 667-0479 [email protected]
Tim Quinlan Economist (704) 374-4407 [email protected]
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