Sunday, November 06, 2011

High Unemployment Is Becoming A Long Term Structural Issue

It appears the high level of unemployment and the underemployment level (U-6) are becoming a long term structural issue. The U-6 has trended somewhat lower; however, seems stubbornly stuck above 16%. Additionally, the unemployment rate seems stuck above 9%.

From The Blog of HORAN Capital Advisors

The mismatch between skills and job openings seems to be more structural as time goes on. As noted by the BLS, the relationship between the unemployment rate and the vacancy rate is known as the Beveridge Curve, named after the British economist William Henry Beveridge (1879-1963). The economy’s position on the downward sloping Beveridge Curve reflects the state of the business cycle. The BLS goes on to note that during an expansion, the unemployment rate is low and the vacancy rate is high. During a contraction, the unemployment rate is high and the vacancy rate is low. The position of the curve is determined by the efficiency of the labor market. For example, a greater mismatch between available jobs and the unemployed in terms of skills or location would cause the curve to shift outward, up and toward the right (emphasis added).

From The Blog of HORAN Capital Advisors

The potential upward shift that may be occurring can be seen in the below chart from July.

From The Blog of HORAN Capital Advisors
Source: Fidelity

This structural change in employment is likely a trend that won't be reversed in a short period of time. Many of the unemployed have been displaced from construction related fields where the unemployment rate is over 20%. Little improvement is seen in construction, both commercial and residential, near term.

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