Posted by: Dirk | August 13, 2012

Structural unemployment and the output gap

Mike Bryan at macroblog has looked at the output gap and nicely summarizes the importance of the concept:

The positions outlined above lay bare why estimates of the output gap command such weight in the discussion of monetary policy—both ends of the FOMC’s dual mandate of maximum employment and price stability may run through it. If the output gap is large, that is, if the level of gross domestic product (GDP) is running significantly under potential GDP, the economy is obviously not in a position of maximum employment. And if that is the case, the inflation trend is likely to be headed lower and so the price stability mandate may also be in jeopardy.

What I want to add to (t)his discussion is that there is some nice data (Table A-13. Employed and unemployed persons by occupation, not seasonally adjusted) from the BLS that shows you disaggregated unemployment rates for some sectors of the economy.

[Numbers in thousands]

Table A-13. Employed and unemployed persons by occupation, not seasonally adjusted
Occupation Employed Unemployed Unemployment
Total, 16 years and over(1) 140,384 143,126 14,428 13,400 9.3 8.6
Management, professional, and related occupations 51,662 53,165 2,742 2,666 5.0 4.8
Management, business, and financial operations occupations 21,747 22,943 1,053 912 4.6 3.8
Professional and related occupations 29,915 30,222 1,689 1,753 5.3 5.5
Service occupations 25,584 26,565 2,764 2,666 9.8 9.1
Sales and office occupations 33,131 32,835 3,288 2,836 9.0 8.0
Sales and related occupations 15,503 15,536 1,603 1,400 9.4 8.3
Office and administrative support occupations 17,628 17,299 1,685 1,436 8.7 7.7
Natural resources, construction, and maintenance occupations 13,417 13,174 1,744 1,529 11.5 10.4
Farming, fishing, and forestry occupations 1,166 1,216 157 138 11.9 10.2
Construction and extraction occupations 7,317 7,157 1,161 1,056 13.7 12.9
Installation, maintenance, and repair occupations 4,934 4,801 426 335 7.9 6.5
Production, transportation, and material moving
16,590 17,388 2,103 1,900 11.2 9.8
Production occupations 8,055 8,545 1,049 903 11.5 9.6
Transportation and material moving occupations 8,534 8,843 1,054 997 11.0 10.1
(1) Persons with no previous work experience and persons whose last job was in the U.S. Armed Forces are included in the unemployed total.
NOTE: Updated population controls are introduced annually with the release of January data.

I would argue that structural unemployment would should up as unemployment being high in some sectors and low in others. Structural change would have set free workers in old industries, while in new industries firms are struggling to find adequately skilled and educated workers. The above table does not support that view. Apart from construction, where unemployment is a little bit higher than in the other sectors, and the white collar jobs which have a lower unemployment rate, the picture is bleak across the economy.

My next point is that the unemployment rate is only one imperfect indicator of the situation in labour markets. FRED has a different measure for unemployment, namely the “Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons (U6RATE)”. Here is a current picture:

As you can see the gap between the two measures has increased from 4 percentage points to about 7. There are thus many who are not satisfied with their job situation, many more than before the economic crisis. There is hence some additional slack in the labour market as some workers do not work the amount of hours they would like to work.

The situation in the US labour market is still bad, down from very bad.


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