The Nature of Unemployment
What is the nature of unemployment in America today? It sounds like an ethereal question, but in reality there are some very real, practical and tradable conclusions depending on how you answer that question.
There are basically two kinds of unemployment. Cyclical unemployment is the result of a decline in aggregate production brought on by a recession. Structural unemployment is where there are willing workers and willing employers, but there is some mismatch either in skills or in location of the job. The reason why this matters a great deal to anyone investing in the markets today is that cyclical unemployment may be solvable by either monetary or fiscal policy. If you believe that, then programs like QE3 have the potential to boost aggregate demand and thus boosting employment. Structural unemployment will take time to resolve, as workers either learn new skills, switch careers or move to another city. If you think more of the employment problem is structural, then QE3 would still boost aggregate demand. But instead of increasing real economic activity, it would just cause greater competition for those workers with the proper skill set. That would wind up being purely inflationary....481 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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