Today, the number of layoffs and discharges is very low — in fact, layoffs are at their lowest level since the Labor Department began collecting this data in 2000. Today’s problem instead is the very slow pace of job creation.
Yet unemployment remains high. File under “increasing polarization of labor market outcomes.”
…what ails the U.S. economy is primarily a structural problem, not a cyclical one that can be effectively dealt with through the magic of short-term Keynesian stimulus.
Or let’s consider David Leonhardt’s very good piece on the labor market:
Lawrence Katz, a Harvard labor economist, calls the full [labor market] picture “genuinely puzzling.”
That is Larry Katz, who was chief economist at the Department of Labor under Clinton and who is arguably the most knowledgeable labor economist in the world. Larry Katz, who is renowned for how many literatures he holds at his fingertips. (Here are some papers by Larry Katz, including a good, short piece on unemployment in the great recession.) Larry Katz, who wrote the most effective critique of the Lilien “sectoral shift” hypothesis. Larry Katz, force of nature.
I am not asking you to agree with Spence or Katz, only to keep them in mind. What is striking about the current generation of popular Keynesian models is how little effort they make to integrate cyclical and structural phenomena. This is very much like some of the original Keynesian models of the 1930s, but it is an out of date approach and it will lead to excess optimism about the ability of fiscal stimulus to set things right.