Abbott & Costello Explain Unemployment

Greg Mankiw has a good post using the classic comedy characters Abbott and Costello to explain unemployment.  Good for a laugh and as a teaching tool.

Atlanta Fed Jobs Calculator

The Atlanta Fed has a great online teaching tool for connecting unemployment to growth - the jobs calculator.  It show how long it would take, under specific job creation numbers, to get to a set amount of unemployment.

Projection of Time Until Full Employment

The graph below shows the different projections of how long it will take to return to full employment under different amount of monthly job creation.  As Mark Thoma said, "no need to hold on to your hats, it looks like it will be a slow ride."



Unemployment Across the Unites States

The New York Times has a good graphic of how unemployment over the course of the recession until now has affected different parts of the United States.  The geography of the on going economic problems should spark some debates.  Here it is:

Zandi Thinks the Obama Plan Would Work

Mark Zandi has crunched the numbers for Obama's job's plan and concludes it would work - that it would add 2% to GDP and create 1.9 million jobs and reduce unemployment by 1%. That is the good news. Bad news - he doesn't see a lot of the program getting through congress. Here is the details of his analysis. The best part is the chart below.

Matching Jobless to Jobs on PBS News Hour

The PBS News Hour had a good video on the issue of structural unemployment - the problem that today's jobless may not match the jobs available. In short that structural unemployment is are current problem. As the video makes clear, this is currently a major point of debate.

Watch the full episode. See more PBS NewsHour.

Peter Diamond on Fiscal Policy and Unemployment

Nobel Prize winner Peter Diamond has a video on the Economist web page about the fiscal policy situation and the on-going unemployment problem.

Four Workers for Every Job

Catherine Rampell covers this in the New York Times Economix blog. The improving job numbers makes everyone think that we are out of the woods in terms of the economy. How far we have to go to get back to normal is still a big number. An indication of this is the number of jobless workers for every employment vacancy (this does not get into whether or not the jobless workers are appropriately skilled for the vacant jobs). The new, and improved number is: four jobless workers for each opening - still not good odds. This graph show this and puts it into historic relevance.

Inflation & Unemployment

David Leonhardt has a good column in today's New York Times about the sputtering economy - the slow sluggish jobless recovery. In it he has this good graph of unemployment and inflation that points to the reality that unemployment, not inflation, is the big problem in the economy.

The Whole Population, Employed, Unemployed & Underemployed

This chart from the Marketplace Whiteboard blog provides a good image of the scale of unemployment and underemployment to the whole population.

Time Span to Close the Unemployment Gap

The new unemployment numbers are in - and the overall picture has not changed much. Unemployment is still at 9.6% and underemployment is at 17%. While the economy added jobs, it did not do enough to close the gap between its current state and full employment. For that we need more growth, and more jobs. The hard part, beyond the current numbers, is how long it will take the economy to get back to full employment. The Brookings Institution has a good report on the effects of long-term unemployment, which contained this graph showing how long it would take the economy to return to full employment based on the number of jobs created every month. For reference, only 151,000 Jobs were created in October (its not even on the chart!).

Interactive historical unemployment graphic

The Wall Street Journal has a great interactive graphic showing the historical unemployment rate in the United States. The graphic provides an interesting way to look at severity of recessions and puts the current crisis in context.

Structural Unemployment & NAIRU

Defining and explaining unemployment is an important lesson in any economics class. A lot of time is spent on differentiating between the different types of unemployment and the solutions to them. A lot of the current focus in the news on unemployment is on the cyclical unemployment created by the recession, with some discussion about how many of the cyclically unemployed are actually shifting to become structurally unemployed. Usually, I use this as point for a discussion on the importance of education, and support for continuing education, so that the structurally unemployed can return to the work force, at a different job with their new skills.

However, there is a second discussion that I should be having with my students about how macroeconmoic policy can reduce the shift from cyclical to structural unemployment. This is one of those discussions that bring together a bunch of ideas from different parts of the course.

Reading today's posts on other blogs clued me into that discussion. The importance of structural unemployment is raised on the Economist "Economics by Invitation" blog (the answer by Mark Thoma is quiet good from the teaching perspective on the role of technology) and the point is followed up by a post on Krugman's blog, where he notes the increase in NAIRU (non-accelerating-inflation rate of unemployment). The problem is that this means higher permanent unemployment, even when the economy recovers.

The important point, and the one where it is crucial to remember the definitions of unemployment, is that structural unemployment will not be measured by the official unemployment numbers. Most people who are structurally unemployed will effectively drop out of the labor force (typically by claiming disability or "retiring").

The other important point here is the output gap, or the difference between potential and actually GDP. The measure of the output gap is an indication of the true depth of the recession since it shows the amount of GDP that could be produced from fully utilizing resources.

The output gap has been a way of noting the severity and length of the current crisis. Projections show that even when the economy is growing again (we are in recovery with growing GDP), it will be a long time until potential output is again equal to actual output. However, with higher structural unemployment, we may close the output gap faster, but be poorer for it. And be permanently poorer because of it.

One big factor in the shift form cyclical to structural unemployment is the length of unemployment. The longer a person is unemployed, the more their skill set declines and the less employable they become. So, the effect of increasing structural unemployment in this current recession is not just a factor technical change in the economy, it is also an effect of the severity of the recession. This is a place where stimulus employment may have a significant long-term effect to lower structural unemployment, hence make us all wealthier in the future.

Unemployment Numbers and their Meaning

The new unemployment numbers last Friday were grim. While unemployment did nudge down to 9.5 % (from 9.7%) that is because more people left the labor force. That is not a good sign - it shows we actually have longer time to go before there will be any recovery in jobs. Throughout this recession, but especially this spring when it seemed as if the numbers were showing the economy was slowly nudging toward recovery, the constant refrain was the unemployment is a lagging indicator (it follows behind the business cycle), so it will only come down after the economy is into recovery. However, and this is why it is important to teach students how unemployment is calculated, the unemployment number can be greatly affected by the number of workers who choose to leave the labor force because they are "discouraged". The Friday unemployment numbers show increasing worker discouragement - a bad sign. Ironically, as the economy recovers, unemployment should actually go up as more workers re-enter the work force because they believe they can find jobs.

We may be heading into a situation of sluggish growth with high unemployment. Not a recession and not a recovery. A bit like the seventies without inflation.


This news has further fuelled the debate over austerity versus additional stimulus spending. This is particularly focused on the extension of long-term unemployment. There are a number of good articles out there that get to this point well. First, Edward Glasser of Harvard has a good piece in the Economix blog at the New York Times web page in which he sets out the basis points of the debate and provides a historical lens to see the debate through.

On a related note. The Sunday New York Times had a good article on Kenneth Rogoff and Carmen Reinhart and their book "This Time is Different" which is a history of financial collapses going back 800 years. The point of their book, hence the title, is that through out history people have said that the financial collapses of their times are "different" from the previous experiences, but that is they are really very similar. Their analysis shows how speculative bubble cause vicious financial collapses that can lead to massive government debts and long protracted recoveries. Sounds familiar? Unfortunately, their book is to dense for students - which is too bad because the insight is so important. Because of that, I think the article is a good short and concise way to introduce students to the concepts of their book. I am planning to assign the Times article with another one by Paul Krugman and Robin Wells from the New York Review of Books which puts the ideas from "This Time is Different" into the context of the current crisis.

At this point I am debating when I should assign the articles. At the start of the year, as a way of introducing the current state of the economy, or during the unit on financial markets and their affect on the economy. Right now my thoughts are to have them at the start of the year.