As US unemployment is stuck at 10%, economists worry whether we looking at "structural unemployment“. By “structural unemployment,” they mean that a high level unemployment has become a permanent feature of the economy.
In his article in the current issue of The New Yorker, “The Jobs Crisis”, James Surowiecki rightly debunks the notion of structural unemployment. He points out that economists always begin to worry in a lengthy recession whether unemployment has become structural. But in each recession, lo and behold, the economy recovers. Sometimes quickly. Sometimes slowly. But eventually it recovers. In the case of the current recession, he argues that all the evidence points to the current level of unemployment being a “normal” feature of the aftermath of the financial meltdown of 2008.
Thus if unemployment had become structural, you would expect to see differentials between prospering sectors and those in decline. No such evidence is present. And the Beveridge Curve, in which economists believe as strongly as the Aztecs worshipped the sun, is behaving much the way it has in previous recessions: there are as few job vacancies as you’d expect.
So according to Surowiecki, the jobs crisis—stubbornly high unemployment—is simply a matter of getting out of the recession. We can either do it slowly, as now, or more quickly, if we had the political courage to inject a political bigger stimulus package. We don’t have that political courage. So the only thing we can do is wait it out.
The real jobs crisis: the quality of jobs
What Surowiecki’s article misses is the real jobs crisis. As Richard Florida has so often pointed out, the real jobs crisis concerns the quality of the jobs, not the quantity. When we have reports that 84% of the people who have jobs are planning to look for another job in 2011, you have a good indication of the desperation in the workforce today. Moreover, when most jobs suck, changing jobs isn’t going to do anyone any good. It’s exchanging one bad job for another.
So reducing unemployment from 10% to 5% is important. But it’s not nearly as important as transforming the world of work so that most jobs are good jobs and provide deep satisfaction for those who hold them.
This is not just a matter of keeping the workers happy. In today’s knowledge economy, the motivation of workers is a key determinant of productivity. The lack of passion in today’s workforce is a fundamental cause of the continuing sharp decline in the performance of the Fortune 500.
The result of that decline in performance is that the economy is no longer providing good living for its citizens. The economic pie is no longer large enough for everyone to get a fair slice: Real average hourly earnings (excluding fringe benefits) now stand roughly at 1974 levels.
This decline in performance is also what underlies the political gridlock in Washington DC. After you puncture the Internet bubble of the 1990s and real estate bubble of the 2000s, and allow for the funny numbers created by the financial tricks that accompanied these debacles, it turns out that the real economy hasn’t been growing fast enough to accommodate gains for everyone. Once the rich and powerful take their cut, there’s nothing left for those in the middle or the bottom. So politics becomes a zero sum game: nothing gets done.
The solution: radical change
Not having correctly identified the right problem, it is hardly surprising that economists like Surowiecki don’t identify the right solution.
They miss the good news that some organizations have figured out how to run their organizations in a radically different way and get better results. A whole array of books have been published that describe what’s involved. I’ve synthesized what these books are saying in my article, The Death—And Reinvention—of Management. Or you can read the books themselves, such as The Power of Pull by John Hagel, John Seely Brown and Lang Davison, or Reorganize for Resilience by Ranjay Gulati or my own book, The Leader's Guide to Radical Management: Reinventing the Workplace for the 21st Century .
So here's a New Year's resolution for economists: in 2011: spend some time on the real jobs crisis.
Is my proposed solution radical enough? Read my subsequent post: