Will Unemployment Truly Improve?
Washington Post columnist Neil Irwin stopped by to discuss his book, The Alchemists: Three Central Bankers and a World on Fire. It's a great read on the history of central banks, including how they responded to the financial crisis and the challenges they face in the future.
In this video segment Neil takes questions on the real cause of unemployment, and the need to balance today's news with a longer view on economic developments. A full transcript follows the video.
Audience Member: Speaking of the (unclear), and of course one of those is the unemployment rate. The Fed's put out a target of like 6.5 or 7%?
I'm wondering if, though, it's the (unclear) of the main rate. I'm essentially finding that, at least up in Fresno, in the sense that we have a situation in the U.S. where getting to 7.5% unemployment is actually almost (unclear). It's still a high number, but you essentially have a large block of the population that doesn't have the skills or (unclear) to actually take a lot of these jobs that are available.
You see Silicon Valley senior executives saying, "Hey, we've got thousands of jobs. We need programmers and systems analysts, and we just can't find enough of them," and that's why we're seeing (unclear). Is that really (unclear), to say that we'll eventually get to a 6.5, 6% or less than that, one day in the future. Is that (unclear) with that policy?
Neil Irwin: I think it's right to be attuned to that question. How much of the current unemployment is not just, "We had a cyclical downturn and a recession and we're trying to get out of it," but "American workers do not have the right skills for the opportunities in the modern economy, so unemployment is perhaps permanently higher," would be the argument.
I would just say this. I think it's right to be asking the question and analyzing it. I think most analysis that I've seen, to date, suggests that eventually we might hit that point, but we're not there yet. If that's the case, if structural explanations are a major part of the unemployment problem right now, you would expect to see some of these things...
You would expect to see rapidly rising wages for those who are working, because if the people with the right skills are in high demand, you would expect to see those people with high skills be seeing huge raises. Wages are pretty flat, rising very slightly in nominal terms, flat in real terms.
You would also expect to see things like a rising work week. You would think that if the problem is that there is not enough people with the right skills, you would think companies would be working those who do have those skills longer hours, to get more use out of them. The work week has risen a little bit the last year. It's nothing dramatic.
There's a few other analytical tools you can look at to assess these things. I think it's the right question to be asking, and I think that analysis needs to be ongoing, and we definitely need to be attuned to the possibility that something more fundamental has been wrong in the U.S. economy.
But I think the idea that 7.5%, we're already there -- and most likely even 6.5% -- is less of an issue. I'll add, on the Fed having this 6.5% threshold; they have said, "We're not going to raise interest rates until we hit 6.5% on the unemployment rate, or 2.5% on the inflation rate."
What you expect to see, if they're misjudging what's going to happen on ... where structural employment is, you would expect to see that inflation threshold be hit before the unemployment one is, and that would trigger tightening as well.
It's something to worry about, but maybe not quite yet.
Audience Member: A writing question for you; I know you're following every day (unclear). I'm wondering, at what point are you able to step back and consider the larger, whole arc of what's going on? Did you have to take a sabbatical to do that, and write the book, or is that just a part of your daily process of writing a story and was that kind of the inspiration for the book?
Neil: I took nine months of leave to write the book. I had been working on it for a total of about two years, including that nine months.
It's tough. I think all of us in journalism, and certainly in economics and financial journalism, this is hard stuff.
I think it's really important that you do two things -- and those two things can be in conflict -- which is really pay attention to what's happening every day and try and explain as best you can what's happening that day. Use whatever knowledge you have to present that in an accessible way, that people can learn what they need to know.
At the same time, if you're totally connected to what's happening in that day's news, that day's jobs report, or that day's congressional testimony, you're almost certainly not giving people the broader picture of how the economy's changing and how it's evolving.
Now, different organizations will have people with different specialties. I try and do a little of both, but I think it is hard, and I think resolving that tension is something that ...
Now that we've been through this wrenching several years of economic crisis and recession and slow, halting recovery, I think it's all the more important that those of us who write about economics and write about finance find ways to do both and make sure we're stepping back, in addition to telling people the day's news.
I don't pretend it's easy, though. I had to take nine months of leave to do it.
Morgan: Neil, thank you very much.
Neil: Thank you.
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