There’s a new cliff in town, and it’s much scarier than the fiscal cliff. It doesn’t have any­thing to do with expiring tax cuts or sequesters. It has to do with people who have been out of work for six months or longer. It’s the worst cliff of them all: the Unem­ploy­ment Cliff.

Our unem­ploy­ment crisis is also an unem­ploy­ment enigma. When jobs open­ings go up, unem­ploy­ment should go down. This rela­tion­ship is cap­tured by the Bev­eridge Curve, seen below. The diag­onal red line says that when there are more vacant job open­ings, the unem­ploy­ment rate should be lower. But as you can see in the bottom right hand corner, some­thing strange (and very bad!) is hap­pening. More job open­ings haven’t pro­duced more jobs. That sug­gests a mis­match between jobs and skills … the dreaded “struc­tural unemployment.”

Look again. This might be the most impor­tant chart you’ll see. If unem­ploy­ment really is struc­tural, there’s not much more pol­i­cy­makers can do to bring it down. If it’s not, pol­i­cy­makers should be tearing their hair out to put people back to work. So, is it? No. A pio­neering paper out of the Boston Fed pretty defin­i­tively shows that we have a long-​​term unem­ploy­ment problem, not a struc­tural unem­ploy­ment problem.

There’s always a story when it comes to struc­tural unem­ploy­ment, and it’s almost always a story about old workers needing new skills for our brave, new eco­nomic world. The Boston Fed paper, by Rand Ghayad, a Ph.D. can­di­date in eco­nomics at North­eastern and Visting Fellow at the Fed­eral Reserve Bank of Boston, and William Dickens, a pro­fessor of eco­nomics at North­eastern and vis­iting scholar at the Fed­eral Reserve Bank of Boston, looks at the Bev­eridge curves for dif­ferent ages, indus­tries and edu­ca­tion levels to figure out exactly who is get­ting left behind nowa­days. The answer is … everybody.

Read the article at The Atlantic →