Timothy Taylor on Long-term Unemployment
We need a convincing theory of this third kind of unemployment–sluggish unemployment, tar-pit unemployment–and an associated sense of what policies are useful for addressing it. Firms as a group have high profits and strong cash reserves, but they are not seeing it as worthwhile to raise hiring substantially, preferring instead to focus on getting more productivity from the existing workforce. Are there ways to reduce the costs and risks that firms face when thinking about hiring? Many households are struggling with outsized debt burdens, including those who have mortgages that are larger than the value of their home. Are there policy levers to help them move past their debt burdens?
I strongly recommend reading the entire essay, although I do not see why “outsized debt burdens” are an issue for a jobless recovery. If they matter at all, presumably they matter because of aggregate demand.
The Scott Sumner answer would presumably be that monetary policy has been serially surprising the market with its tightness, so that the recession has been long and deep. It sounds like a good story when he tells it, but not when you stop and think about it. Or when you look at the decline in real unit labor costs.
The Tyler Cowen answer would presumably be ZMP, meaning that some workers now have zero marginal product. Or a marginal product that does not justify paying the minimum wage, in addition incurring the fixed costs of hiring, training, and supervising. I find this answer more plausible.
I also find plausible another answer that I could also trace back to Tyler but which I have pushed more extensively, and that is the PSST story. It takes a long time for entrepreneurs to grope their way to new patterns of sustainable specialization and trade once old patterns break up.