Unemployment: Structural vs. Cyclical – and Globalization's Adverse Impact

Abstract:     
The U.S. economy continues to be characterized by a persistently-high rate of unemployment, with at least another three years before attainment of the pre-recession unemployment rate.

Six significant structural trends are identified and their impacts discerned.

The pernicious impact of globalization on U.S. employees, as manifested by the post-2000 business practices of America’s multinational corporations (MNCs), has seen multinationals shifting and growing their workforces overseas. Between 1999 and 2008, U.S. non-bank MNCs cut their domestic employment by 1.9 million while increasing their foreign-based employment by 2.4 million. After a decade, it is apparent globalization has yet to come full circle and bestow its gains to American workers. Offshoring by U.S. companies is also having a deleterious effect on the level of domestic employment, particularly in manufacturing and data processing.

Advances in technology are serving to replace domestic employees with software or lower-paid foreign-based workers. In 2000-08, domestic spending on capital expenditures by U.S. MNCs grew at an annual rate of 1.1 percent while their foreign-based affiliates invested at an annual rate of 6.2 percent.

A need for more highly-educated employees has manifested itself by consistently-favorable wage patterns. The low levels of monthly job creation and a declining labor force participation rates, particularly for prime-age men, since the turn of the century left workers vulnerable to the harshest post-World War II recession. The decreasing participation rate after 2000 may also reflect harmful impacts of globalization, with discouraged laid-off U.S. workers no longer looking for jobs. Over 23 million people – 50 percent of the increase in the U.S. population between 2000 and 2009 – were classified by the Bureau of Labor Statistics as “not in the labor force”. And the detrimental effect of long-term unemployment is a structural impediment to becoming well-positioned to compete for available jobs.

The six structural factors – globalization, technological advances, the need for a highly-educated and skilled workforce, declines in the labor force participation rates, particularly for prime-age men, the relatively-low levels of job creation and the effects of long-term unemployment – seem to be currently dominated by cyclical causes. However, if unemployment rates remain elevated for an extended period, structural causes of unemployment will likely predominate.

Number of Pages in PDF File: 58

Keywords: unemployment, structural, cyclical, globalization, offshoring, value added, technological advances, jobless recovery, labor force participation rate, real GDP growth, productivity, manufacturing, education

JEL Classification: E24, E32, E65, I22, J64, D24, I21, J21

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