January 24, 2012
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Dale Mortensen is an economist and a professor at Northwestern University. He was a co-winner of the 2010 Nobel Prize in Economics. Mortensen's research focuses on labor economics, macroeconomics and economic theory. Dan Richards spoke with him in early January at the annual Meeting of the American Economic Association held in Chicago.
A video of this interview appears here.
There are many public policy issues that policymakers around the world are grappling with today. One of them relates to unemployment. In the United States, unemployment is 8.5% which is less than what it has been, but still high by historic standards. There is a view in fact that that 8.5% under-represents the real number. Based on your work, how serious a problem is the level of unemployment in the US and other advanced economy's today?
It's a very important problem. To give some notion of its magnitude, at the moment in the United States there are six million fewer people employed than there were at the beginning of the recession. And that doesn't account for the fact that the size of the labor force has risen in those four years. That's huge. It's the biggest number we've had.
There are some who claim that we are in a new equilibrium, that the problem is a mismatch between the jobs that are available and workers’ qualifications.
Is it a structural problem?
I don’t agree that it is a so-called structural problem. There is some of that, and there is even more potential for it in the future, because what we do know from past research is that long periods of unemployment adversely affect people’s ability to become reemployed for a variety of reasons. But if unemployment is four percentage points higher now than it was, I would attribute only a quarter of that to structural issues.
From a public policy perspective, there are two broad views on what's to be done. One of them is to let the business cycle work its normal course. We have been through periods in the past of economic slowdown, so just let the normal mechanisms work. The other view is to say that we need to accelerate that process of recovery through a significant fiscal stimulus and other policies to create employment. Where do you stand on that?
The answer is obvious. By letting things go as they are we are throwing away close to a trillion dollars a year in terms of goods and services. What do you do when private demand falls? Well, particularly when wages fall and prices fall, it may be a good time to substitute public demand. It isn't that we don't have needs for that. So I'm of the view that a much more aggressive fiscal policy is in order.
Of course, that raises a whole set of other problems about the current political situation.
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