HICKS: Structural unemployment not always a burden

August 3, 2009

A few weeks ago, a couple of my economist colleagues took issue with the phrasing in one of my columns. In a rare turn of events, they are right, and I was wrong.

The phrase at issue was my characterization of structural unemployment as a pernicious burden on communities and individuals. As a reminder, structural unemployment is the type that occurs when a set of skills or products become outdated. The textbook example is buggy-whip makers. My colleagues noted that the choice of the word “pernicious” implied great and permanent damage. Structural unemployment doesn’t have to involve either.

In the short term, both workers and communities suffer when a skill, trade or product they make falls from favor. Jobs are lost, businesses close and communities scramble to right themselves (sometimes without success). The point of the matter is that these disruptions are the price we pay for the highly livable world we live in.

A scant 450 years ago, the world was largely the same everywhere. All but a few of our forebears lived lives that were short, nasty, brutish and boring. Most people lived lives within a mile or so from where they were born. The chief excitement these illiterates enjoyed was perhaps the chance to walk a few hundred miles to a battlefield to fight with weapons largely unchanged since the times of King David.

Over the next 150 years, some powerful ideas swept the world. These are the same ideas we are sharing in places such as Kandahar and Basra. For the ensuing 300 or so years, the places that internalized these ideas really prospered. Lifespans more than doubled, populations grew and literacy became ubiquitous.

This great period of economic growth was a complex matter, but one thing that was absolutely necessary (though not perhaps sufficient) was trade. Trade in goods and services meant rapid technological growth, the movement of production to places it was most efficiently performed and, inevitably, the displacement of individuals who could not transform themselves.

Many readers will think this an easy argument for a professor who is insulated from such rigors of trade. That is mistaken. Perhaps no place in the world is as subject to international competition as an American university. Our center has Thai, Indian, Russian and Uzbeki staff, and all of the American research staff has significant international experience. This internationalization of my occupation places great pressure on my technical skills. I suspect my experience is common.

In the places where American commerce, arts and sciences really excel, we are under robust international competitive pressure. A necessary part of this is the demand for continual improvements by both workers and industry. This increase in productivity means that some will have to learn other, more relevant skills over their increasingly long life. That seems to me a small trade-off. Some structural unemployment is inevitable, but as my colleagues reminded me, the results are not at all pernicious.•


Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.


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