The road back to a low unemployment rate will be long and difficult
Just as hopes were beginning to build that an economic recovery was finally at hand, last week's news from the Labor Department came as a profound shock. The unemployment rate vaulted from 10.4% in October to 10.8% in November, its highest level since 1941. Some 12 million Americans are now facing a grim holiday season with no paychecks. Joblessness in the battered Midwest is reaching Depression levels: 17.2% in Michigan and 14.2% in Ohio. Congressional Democrats, who heard the bad tidings in testimony from Janet Norwood, commissioner of labor statistics, immediately attacked the White House. Representative Augustus Hawkins of California denounced the Administration's economic policy as "a shabby betrayal of public trust." Aboard Air Force One en route to Colombia on his Latin American tour, President Reagan conceded that "the unemployment report represents a continuing tragedy. This news makes it important that we press forward in our efforts to create a solid, sustained recovery."
Most economists were surprised by the sharp jump in joblessness. Says George Perry, a senior fellow at the Brookings Institution in Washington, D.C.: "All claims that the recession is ending now ring rather hollow." Perry fears that unemployment may go on rising into the spring and top 11%.
Bad as the news was for the short-run outlook, it was almost matched for bleakness by long-run prognostications made last week by the chairman of the President's Council of Economic Advisers. A somber Martin Feldstein told a breakfast gathering of reporters at the Washington Press Club that the unemployment rate may take five or six years to drop to the 6% to 7% level that prevailed during the early months of 1980.
Trying to downplay the White House's responsibility for such a dismal prospect, Feldstein and Treasury Secretary Donald Regan have argued repeatedly in recent weeks that the U.S. is plagued by a high rate of "structural unemployment," which cannot be cured by the Government's traditional pump-priming tactics of boosting spending or expanding the money supply. The term structural unemployment is a fuzzy concept that has been bandied about by economists for years, but has no clear-cut definition. Generally speaking, it refers to people out of work not as a result of a recession, but because their skills do not match the available jobs. There is no way to identify or count such workers with any precision. Nonetheless, many economists, including Feldstein, estimate the structural unemployment rate at about 6% or 7%. The figure seems puzzlingly high to laymen, who recall that when the Humphrey-Hawkins Full Employment and Balanced Growth Act was passed in 1978, an unemployment rate of 4% was considered the highest acceptable limit.