Monday, June 22, 2009

Housing and Structural Unemployment

If most of the unemployment we are seeing is really structural in nature, then the housing problem is going to make it a slow recovery. From Megan McArdle at The Atlantic:

A recession like this is the worst time to lose your labor mobility. I am quite convinced by the argument that since the 1980s, recessions have been characterized by structural, rather than cyclical, unemployment. Rather than temporary layoffs of workers during periods of slack demand, modern recession-driven unemployment tends to result from the destruction of jobs, firms, even industries. That's why long-term unemployment creeps up, and skilled workers are having a harder time than they used to during downturns: it takes longer to match a skilled worker with an appropriate position than to slot body into a low-skilled place.

In those conditions, workers need geographic mobility to offer them a wider variety of potentially appropriate jobs. But this time around, they're tied down by overpriced real estate and underwater mortgages.

(Summer macro students - note that she links to the same article you got to read for assignment 2.)

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