When jobless and jobs don't match

Unemployed construction workers can't meet the growing need for nurses without time- and cost-intensive retraining.

Illustration / Julie Notarianni / Seattle Times / Newscom / File
No matter how hard you push a square peg, it won't make it into a round hole. If the unemployed lack the training to fill the new jobs of a shifting economy, it creates the twinned problems of unemployment and long job vacancies.

In the September 4th issue of the Wall Street Journal, Jon Hilsenrath chronicles the debate over the reasons for persistently high unemployment. What is being described is the problem of heterogeneous labor.

Labor, like capital goods, is specialized and specific to certain occupations. When those occupations disappear in recession, the next best alternative immediately available locally may pay considerably lower wages. Workers may “know” they have better alternatives, but their knowledge capital has also depreciated with the crisis and downturn. They must search for employment opportunities.

The example in the article is construction and health care. Construction suffers disproportionately in the recession (as it had benefitted disproportionately in the boom). Health care is expanding, but that industry has little need for construction workers. Nurses are needed, but the period of production is lengthy. So there is an excess supply of construction workers and excess demand for skilled health-care workers. Those two markets don’t clear each other, except with the most drastic of wage movements or the passage of time allowing for retraining.

Heterogeneity (of labor and capital), structural shocks and time are all grist for Austrian mills. More Austrians and classical liberal political economists should be jumping into the fray. The issues are mainly price theoretic; no detailed knowledge of capital theory or monetary economics is needed.

The structural aspect of the recession is now obvious to all but the invincibly ignorant. The distinguishing feature of the Mises/Hayek analysis of economic fluctuations is its structural character, or what Hayek called the disproportional nature of both the expansion and contraction phases.

“Spending” won’t cure any of these problems, which reflect coordination failures. Wage and price changes still need to occur. Fears of deflation may lead to policies impeding the needed changes in relative prices. Long-run adjustments will involve retraining, occupational changes and geographical reallocation. “Compassionate” policies to cushion the adjustments, like lengthening the period of unemployment payments, prolong the adjustment and deepen the downturn.


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