ABA Banking Journal - November 2010 - (Page 10)

the economy | By jOhN silVia & aNika khaN Our two cents on structural unemployment In August, the unemployment rate rose to 9.6%, but it has been stubbornly around this elevated level or higher for well over a year. Economists and policymakers have been engaged in heated debates about the underlying cause for the sustained levels of joblessness. Much of the discussion has focused on structural unemployment. Structural unemployment suggests there is a fundamental mismatch in the number of people who want to work and the number of jobs that are available for their skills. The presence of structural unemployment means there are no easy fixes and any recovery in the labor market could be agonizingly slow. Job seekers by industry Ratio: unemployed / job openings 2001 vs. 2009 which is almost double the peak rate in the previous downturn. A closer look at construction jobs How can we further check the existence of structural unemployment in the construction sector? Wage rigidity is yet another way to test for structural unemployment. Sticky wages occur when firms ration scarce jobs, and wages adjust sluggishly to the supply and demand of labor. Nominal construction average hourly earnings grew at a fairly consistent clip beginning in 2006 when the series began. Since the start of the year, earnings appear to have flattened in real and nominal terms, which could suggest some wage rigidity. To be sure, we would need to see the construction industry recovering without an improvement in employment. As we are only a little more than a year into the recovery, such analysis is still too premature; the cause could be cyclical versus structural. If there is indeed an issue of structural unemployment, what is the impact? Construction jobs make up only 4.3% of the overall labor market, so any impact would be limited. The loss of skills, however, by the 2.1 million construction workers during the downturn is an obstacle to growth. n 2.4 Leisure & hospitality 4.5 0.8 Education & health 2.7 5.4 Manufacturing 6.8 Unemployment by industry If we look at the number of unemployed workers to job openings by industry, we find the ratio of job seekers seems to be in line 10.9 Construction 27.1 with the previous recovery. The construction industry, however, is a clear outlier with more than 20 unemployed workers qualified for As of July 2010 (2001 recovery is based on 13 months into the expansion) each job opening, which is almost twice the number of job seekers from the previous expansion. Even the manufacturing sector, which was also hard hit, remains roughly in line with the previous expansion at almost seven unemployed workers per job opening. This suggests there are signs of structural unemployment in the construction industry where workers’ skills are not easily adaptable elsewhere. Another way to determine whether skills match is to compare the peak unemployment rate in the curJohn Silva is chief economist and Anika rent recession to the 2001 recession. Again, the construction sector is an Khan is economist at Wells Fargo Bank, obvious outlier with the peak unemployment rate reaching a staggering 27%, based in Charlotte, N.C. 10  |  ABA BANKING JOURNAL  |  NOVEMBER 2010

Table of Contents for the Digital Edition of ABA Banking Journal - November 2010

ABA Banking Journal - November 2010
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
ABA Community Banking: Chapter 12’s Bad Fit
Pass the Aspirin
Tech Topics
Capital Squeeze
Basel III Redefines Capital
Compliance Clinic
Compliance Inbox
ABA Resources
Investment Management
Surveys & Trends
First Person

ABA Banking Journal - November 2010

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