Nicklaus: Will 9 percent unemployment become the norm?

2011-09-26T00:05:00Z 2012-12-18T17:17:51Z Nicklaus: Will 9 percent unemployment become the norm?DAVID NICKLAUS > 314-340-8213

Debra Fox lost her management job at a St. Louis technology company in February, more than a year after the recession officially ended. As far as she's concerned, it's still going on.

Fox is among 6 million Americans who have been out of work for six months or more, a group that seems in jeopardy of becoming a permanent underclass if the job market doesn't turn around soon.

It's not the first time she's been unemployed, but Fox, 55, of Creve Coeur, says this is by far the most difficult job search she's undertaken. She believes employers are pickier simply because they can be.

"If there are 10 attributes they are looking for and you have eight of the 10, you won't make the cut," she says. "It's the whole cyclical thing. It's something that needs to get kick-started somehow."

But how? That's the question being asked as Congress considers President Barack Obama's proposal for an $447 billion jobs program. Some Democrats say it should be bigger, while Republican leaders say it will just inflate the budget deficit without creating many jobs.

Much of the debate is partisan posturing, but it also involves a difficult economic question. Does today's 9.1 percent unemployment reflect long-lasting structural changes, like the housing downturn that has cost legions of construction workers their jobs, or is it just a cyclical problem that can be cured by faster economic growth?

David Andolfatto, a vice president and economist at the St. Louis Federal Reserve Bank, believes it's probably a bit of both. The debate, he says, is between Humpty Dumpty and a deflated balloon.

Deflated-balloon thinkers attribute the economy's ills to a severe lack of demand. If the government could just stimulate more spending, the balloon would reinflate.

The Humpty Dumpty hypothesis holds that the economy is badly broken, and stimulus won't work until we've repaired the structural issues.

The severe financial crisis that accompanied the recession certainly did leave parts of the economy looking shattered. General Motors and Chrysler laid off thousands of people as they went through bankruptcy. When the housing bubble collapsed, so did the job market for construction workers.

Growing industries, like health care, don't have much use for the specialized skills of an auto worker or a carpenter. A worker displaced by structural change may need to retrain, accept a much lower wage or wait out a long stretch of unemployment - or all three.

The story also has a geographic element. Normally, we'd expect workers to move from areas where jobs are scarce, like Michigan, to states where unemployment is low, like North Dakota. Moving becomes difficult, though, when a lot of people are locked into mortgages that exceed their houses' worth.

Conventional policy measures, like stimulus spending by the government or monetary easing by the Federal Reserve, may not help workers much in such an environment. "The Fed can't train a construction worker to become a nurse," Andolfatto says.

The best evidence for the Humpty Dumpty hypothesis may be a couple of numbers from the Bureau of Labor Statistics: Between July 2009 and July 2011, employers reported 52.8 percent more job openings, but they increased hiring by just 8.7 percent. In other words, companies are having a hard time matching the skills they need with the workers who are available.

"It's not a slam dunk, but it certainly does suggest that perhaps structural factors are playing some role," Andolfatto says.

Data on business confidence, however, support the deflated-balloon story. A survey by the National Federation of Independent Business says that more companies expect their sales to fall than to rise in the months ahead.

When you're pessimistic about future orders, you're likely to put any hiring plans on hold. That may be why employers, as Fox says, are being picky.

Are they being rational, though? That's a key question, Andolfatto says: If they are, and they're reacting to deep-seated problems like the federal budget deficit, then a government spending spree won't help.

If, on the other hand, employers are succumbing to emotion and panic, the government should make investments that will help break the cycle of fear.

Ken Matheny, an economist at Macroeconomic Advisers in Clayton, acknowledges that some structural factors are at work, but he thinks unemployment is mostly stuck in "a long and severe cycle that takes a long time to overcome."

Obama's proposed American Jobs Act would have some benefits, but they'd be temporary, Matheny says. His firm's base forecast is for unemployment to fall slowly, to 8.9 percent next year and 8.4 percent in 2013. If all of the president's stimulus measures are enacted, Matheny says, the jobless rate would drop faster, to 8.6 percent in 2012 and 8 percent in 2013.

For the long-term unemployed, such slow improvement is cold comfort. Ruth Ann Edwards, 58, was laid off from a health care call center last October, and she doesn't think her job skills are out of date. She enrolled in a community college program to earn a certificate as a health-information professional, but she's landed only three job interviews in 11 months.

"I don't think there are very many opportunities out there," she says.

D.C. Cooper, 50, has been out of work even longer: He was part of an AT&T downsizing in December 2008. Cooper's résumé features a four-year-old master's degree and a recently earned certificate in Lean Six Sigma, a quality-improvement discipline, but he says his long spell of unemployment seems to count against him.

"If you've been out for over six months, companies won't interview you," he says. They feel as though you've been out that long, so there must be something wrong with you."

In reality, the flaw is with the economy itself. Whether it's a deflated balloon or a shattered egg is open to debate, but either way, the repairs are going to take a very long time.


Read more from David Nicklaus, who is the business columnist for the Post-Dispatch. On Twitter, follow him @dnickbiz and the Business section@postdispatchbiz.

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