On 16 February the Congressional Budget Office (CBO) released its report Understanding and Responding to Persistently High Unemployment.
The CBO cites the current period as the longest stretch of high unemployment since the Great Depression with the unemployment in excess of eight (8) percent since February 2009 and their projection is for it to remain above 8 percent until 2014. Be reminded that the National Bureau of Economic Research (NBER), the official dater of turning points in the economy, declared June 2009 as the trough of the last business cycle. [http://www.nber.org/cycles/cyclesmain.html] Now three years into the expansionary phase of current business cycle, the Bureau of Labor Statistics reported in the January 2012 an unemployment rate of 8.3 percent (or, 12.7 million individuals). And this number excludes a persistent 2.8 million individuals identified as marginally attached (willing-able-looked for a job but stopped looking in a 4-week interval) to the labor market.
In the short term the CBO report attributes the persistence of high unemployment to slack demand for goods and services. Not surprisingly, unemployment and demand are a coupled system. Unemployment rises when business inventory exceeds desired levels due to insufficient demand. The loss of income associated with unemployment widens the gap between business inventory and insufficient demand. In many ways, the dynamics of unemployment-demand replicate the dynamics of competition in biological systems. With little effort we can juxtapose the unemployment-demand story in to the classic predator-prey model—where businesses are likened to predators and demand, the prey.
In this story the prey (demand) has unlimited food supply. The size of the predator population (businesses) depends on the size of the prey population (demand). Rate of change in a population (businesses or demand) is proportional to its size. The external environment does not shift in favor one species (businesses or demand) and adaptation is sufficiently slow.
Over time predators (businesses) thrive in an environment with plenty of prey (demand). Growth in the predator population is, ultimately, checked when its growth outstrips food supply, the prey. Thereafter, the predator population (businesses) goes into decline. As one might expect a predator-prey system is inherently self-annihilating without some outside intervention. Intervention in the biological system, say, the reintroduction of prey, allows for a rebound—but a rebound out-of-synch with predators.
O.K, besides being a nice story, what conclusion(s) might one draw from this exercise?
The most obvious: introduction of more predators into the environment is conclusively NOT the solution!
Yet, time again, most political prescriptions for our economic predator-prey problem focus exclusively on the predator (businesses) and, only begrudgingly, on the prey (demand).
In January the Bureau of Labor Statistics reported that “[t]he number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 5.5 million down slightly from January 2011 (6.2 million) and accounted for 42.9 percent of the unemployed.” This number, however, excludes 2.8 million individuals identified as marginally attached to the labor market. January-to-January numbers showed a reduction in the overall participation rate of the civilian non-institutional population from 64.2% (2011) to 63.7% (2012). Between December and January the labor market absorbed 4.5 million workers, while shedding 7.3 million.
Despite the evidence, OpenCongress reports a new deal in the works concerning the prey:
- Assume the lack of food on the table-roof over head is insufficient motivation for the unemployed to search for jobs that don’t exist! Prescription: shrink the maximum length of unemployment benefits to 63 week.
- Assume drugs are the primary cause of unemployment. Prescription: beneficiaries subject to drug testing.
- Assume budgetary funding is likely tied to cuts in other parts of the social safety net. Prescription: mandatory “reemployment assessment” and training for long-term unemployed.
- Assume sufficient numbers of unemployed have long since been “deleveraged” of homes, therefore, highly mobile. Prescription: mandate “national job search requirements.”
Seriously, how does killing off the prey (demand) not hasten the demise of the predator (businesses)!
Alternatively, the CBO ran an analysis of tax-spending policies designed to “reintroduce prey,” allowing for a rebound over the next two years. CBO concluded that the largest increases in employment per dollar of budgetary cost would be produced by two measures:
- Reducing the marginal cost to businesses of adding employees and
- Targeting people most likely to spend the additional income (generally, people with lower income).
Long term (structural) unemployment is a bit trickier to address. CBO advocates policies designed to eliminate the mismatches between employers' needs and workers' skills through training programs. The mismatch between job locations and potential workers will require a stronger housing market or relocation-style transition programs. Likewise, employers will require “re-education” to mitigate the social sigma associated with hiring the unemployed. Poaching employees in no way lessens our national unemployment problem.
Kay Strong, Ph.D., Southern Illinois University, M.T., University of Houston, M.A., Ohio University; Associate Professor at Baldwin-Wallace College; Areas of expertise: international economics, contemporary social-economic issues, complexity and futures-based perspectives in economics. E-mail: kstrong@bw.edu
very good description...thank you from italy
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