Monday, February 14, 2011

Structural Unemployment

Calculated Risk posted the following today.

February 14, 2011
SF Fed: What Is the New Normal Unemployment Rate?

The key is most of the increase in the unemployment rate is cyclical.

I'm willing to go on the record and disagree.

Click to enlarge.

It took a dotcom bubble and a housing bubble to keep the unemployment rate in the yellow zone.

Who really thinks a gold bubble has a chance of repeating that level of success?

Source Data:
St. Louis Fed: Unemployment Rate


Stagflationary Mark said...

I want to also point out that if you simply average the peak and trough lines as seen in the chart you will end up with a structural unemployment rate of 7.5%.

How's that for scary?

getyourselfconnected said...

It's not scary at all. Record profits prove jobs are not needed. Unemplyed people rent more NFLX video's and we are a service economy after all. The Golden Truth has a chart up tonight that I copied showing NFLX vs. GLD since august 2009:
NFLX: +450%
GLD: +40%
Donde esta un Bubble?

getyourselfconnected said...

Just saw your comment at my last post about CR. Look, the guy was a true original but not so much anymore. Seems more apologizing and making excuses for government tinkering is his thing. I will never forget after the Marck 2009 low and a 20-30 rally from there (cannot remember the time frame) and CR writes "We went long in March". First off, who is "we"? Second, CR never ever mentioned positions before so why the need at that point? So strange.

getyourselfconnected said...

Sorry I am hounding this thread....

Finally, China makes food a smaller part of their CPI, because you know, why include stuff that goes up?:

Fast learners.

Stagflationary Mark said...


Donde esta un Bubble?

No me quites la ilusiĆ³n! ;)

You don't see me saying that NFLX is cheap. Gold didn't exactly start its rises in August of 2009 though.

"Finally, China makes food a smaller part of their CPI, because you know, why include stuff that goes up?"

As China's wealth grows, we would expect to see food become a smaller part of their CPI just like it has here. It's hardly a bold prediction that only ZH could have done.

Historical Changes in CPI-Food Weights

As an economy's per capita income grows, its consumers normally spend a smaller share on essentials such as food. This expected behavior appears in the CPI-Food weights and is reflected in a downward trend for the CPI-Food weights as a percentage of the CPI-U index. The share declined from 28.5 percent in 1960 to 21.99 percent in 1970.

I can't speak for you, but I'm not spending anywhere near 28.5% of my budget on food these days (as Americans were doing in 1960). It's not even close.

The CPI tracks what we spend our money on. That's it. In order for it to make any sense at all, the weightings must change over time to reflect what we actually spend our money on. Otherwise we'd be flooding the CPI with things like phonographs and 8-track tapes.

If the only tool we have is a conspiracy theory (via ZH), then we will see conspiracies wherever we look.

Stagflationary Mark said...

CPI Weights (2007-2008)

Food and beverages: 14.792%

For what it is worth, I spend a lot less than that. I could spend that much I suppose if I didn't care about sale prices and I dined out more than I do.

Anonymous said...

"As China's wealth grows, we would expect to see food become a smaller part of their CPI just like it has here."

I would argue it would become a larger part of CPI as they get rich enough to buy more meat and delicacies, but then go down again as they got even richer.


Stagflationary Mark said...


When my income began to rise from a poor college student to a well off programmer my food purchases did not keep up. Although I did eat more expensive foods, my priorities were mostly aimed at durable goods. In other words, when my income doubled I did not spend twice as much on food. In fact, my first major purchases were a car (so I could drive to work), a new computer (I was a programmer), a TV, and a stereo. There was not much room left for increasing my food budget.

November 3, 2010
World Bank Raises China Growth Forecasts, Urges Rate Hikes

Last year's strong domestic consumption was aided by government subsidies to people to buy durable goods such as refrigerators and television sets.

That's not to say we couldn't see food become a larger part of their CPI, should they slide into a stagflationary depression. That scenario is not exactly a rising wealth situation though.

Stagflationary Mark said...

China's Jan CPI up 4.9%, less than market expectations

The NBS also announced Tuesday it had reduced the weighting of food prices on the CPI by 2.21 percentage points and had increased that of living costs by 4.22 percentage points after the nation's home prices skyrocketed.

Seems like a reasonable change to me.

The statistics agency said the adjustment added 0.024 percentage points to January's figure, denying media reports of a drag-down of 0.3 percentage points.

Apparently replacing skyrocketing food prices with skyrocketing home prices didn't really change the index that much overall. Go figure.

Charles Kiting said...

I'm not concerned with the gold bubble. The equities and commodities bubble is the concern.

I will never forget after the Marck 2009 low and a 20-30 rally from there (cannot remember the time frame) and CR writes "We went long in March". First off, who is "we"?

Second off, what is "long"? I say whoever "we" is starts selling before March 2012. That ain't long in my book.

Verification work is "mints". I expected "printing" myself.

Anonymous said...


I think your income gains were far higher than the average Chinese. Also, your diet probably only adjusted slightly - rural Chinese are eating up to 3 times as much meat as they did in 1980.

Supposedly 40% of their income is spent on food, too.

I think you are correct that durable goods are big chunk, too, but those are going down in price (or were.)

Stagflationary Mark said...

Charles Kiting,

My point was that the gold bubble doesn't *create* jobs like the stock and housing bubbles did.

I hear you though. An equities bubble popping can certainly *uncreate* jobs.

Stagflationary Mark said...


A 200% gain in meat consumption since 1980 works out to an increase of just 3.7% per year.


April 24, 2008
With First Car, a New Life in China

China’s explosive growth in first-time buyers is the driving force behind the country’s record car sales, up more than eightfold since 2000.

That's 800% in just 8 years vs. 200% in 30 years.

Chinese auto sales growth has outpaced Chinese meat sales growth by an extremely large margin.

Jazzbumpa said...

The issue is structural vs cyclical unemployment. Cyclical comes and goes with the business cycle. Structural unemployment results from available jobs and available workers not matching - either due to skill sets, or geographic location.

A high "normal" level of unemployment does not necessarily imply that the causes are structural. For now, there is no evidence of structural unemployment in the U.S.


Stagflationary Mark said...


I strongly disagree. I am not at all a believer in Krugman's theory.

A $10 trillion cumulative trade deficit, the unsustainable growth in debt, misguided assumptions on our future prosperity, and epic productivity improvements across the board is what created our structural unemployment.

We used the trade deficit to borrow goods from the future.

We used the growth in debt to borrow goods and services from the future.

We used misguided assumptions about our future prosperity by assuming that we could continue to make 10% real returns in the stock market. This temporarily gave us the extra money to borrow goods and services from the future.

We used technology to reduce the need for workers.

Structural, structural, structural, structural.

Just how many restaurants does this country need? I have argued that we have WAY too many for what is coming. When I saw that times were turning tough, I stopped eating out. Many still think it was a cyclical downturn. Just wait until they realize it is structural.

Jazzbumpa said...

Mark -

Feel free to disagree with me or Krugman. That's fine. But that's not Krugman's theory. Structural Employment means something specific, by definition: mismatch of jobs and available workers. Also, it includes very low unemployment, rising wages and, and jobs unfilled in certain industries. That is simply not happening.

You can't distort the meanings of words and be an effective communicator.


Stagflationary Mark said...


"You can't distort the meanings of words and be an effective communicator."

How exactly am I distorting the meanings?

Structural Unemployment

Those out of work because of a permanent decline in the demand for an industry's product.

I would argue that there has been a permanent decline in demand for America's products for many reasons and I listed them in my last comment.

Structural Unemployment

A type of unemployment explained by a mismatch between the requirements of the employers and the properties (such as skills, age, gender or location) of the unemployed.

Outsourcing to China and India because the low compensation requirements of the employers do not match the high compensation needs of the unemployed? Structural.

Replacing workers with automatation because the efficiency requirements of the employeers do not match the inefficiencies of the unemployed? Structural.

Stagflationary Mark said...

Here's a bonus structural unemployment thought.


D'oh! ;)