Where the Jobs Aren't: Grappling with Structural Unemployment

Jobs are finally being created, but many of the positions we lost are never coming back

By Zachary Karabell Friday, Jan. 14, 2011
    • Rodney Smith

    You've read the good news. The official unemployment rate has leveled off. But that is like saying of a patient on life support that at least he isn't losing any more blood. Job creation still isn't what it should be, and the time it takes seekers to get a new job still hovers around a record 35 weeks. Back in February 2009, when President Obama unveiled the nearly $800 billion stimulus package, he said, "My economic-recovery plan ... will create or save 3.5 million jobs over the next two years." Two years later, new jobs are few and far between.

    The real fault wasn't with the package but rather with the underlying assumption that job creation naturally follows an overall economic recovery. After all, in the 70 years since the Great Depression, that is what always happened. But what happens if this time it's different?

    The issue in economic terms is whether the current spike in unemployment is structural or cyclical. Since the 1970s, sharp rises in unemployment in the U.S. have all been cyclical, meaning that job losses were a direct reaction to a crisis or recession and employment then recovered largely in sync with an overall economic recovery.

    The inability to confront the structural-unemployment question is a greater threat to future prosperity than high unemployment itself. Other countries have seen many years of high unemployment go hand in hand with solid economic growth: Britain and West Germany in the mid-1980s, Australia in the early 1990s, Canada in the mid-1990s, South Africa today. Unlike these other countries, the U.S. has no recent experience with chronic high unemployment and sees itself as a job-creation engine that may occasionally stall but never seizes up completely. The idea that the problem may be deeper and structural barely registers.

    The truth is that the decline in jobs is a result of megatrends including the growth of technology and the rise of globalization. Neither of these is going away. U.S. companies have become more profitable than ever in the past two years even as unemployment has grown. That's because they've been able to tap an emerging global middle class in China, Brazil, India and elsewhere, both as consumers and lower-cost workers. This, along with the hyperefficiencies produced by technology, has allowed businesses to generate record revenues and profits while shedding record numbers of workers. Company after company is hiring outside the U.S. and firing in the U.S. — IBM has more workers outside America than in it — and that won't change.

    These structural issues will not go away simply because the Fed pumps more money into the financial system or Washington spends more in the form of tax cuts or stimulus. Other countries facing structural unemployment came to understand that the only way to manage a structural decline without having the social fabric unravel is first to admit it exists and then work on ways to solve it. Because Americans deny the structural issue is possible, the problem is dealt with piecemeal through endlessly extending supposedly temporary unemployment benefits that not only are costly (about $60 billion a year) but also, because they are labeled as temporary, generate anxiety.

    Capitalism can necessitate periods of massive disruption as the system reboots, but that requires a collective hard look in the mirror and the following appraisal: the decline in domestic jobs is the result of technology and globalization, both of which have enhanced prosperity. There is no going back, and the manufacturing jobs that have been lost are gone forever. But with a stable economy that is still the world's largest, the U.S. can manage high unemployment if it focuses on building a new economy with cutting-edge infrastructure and education that rivals that found anywhere else in the world.

    This story originally appeared in the January 17, 2011 issue of TIME.