This morning we wrote about the big debate on unemployment: Is it structural or cyclical? In other words: Is high unemployment the result of a fundamental shift in the economy, or merely the result of anemic demand.
One strong argument against unemployment being structural is that it turns out it’s not harder than normal for the long-term unemployed to find work, at least compared to the short-term unemployed. In other words, contrary to popular myth, there isn’t this big, under-skilled, long-term unemployed class that will never re-enter the workforce again.
Still, people have the idea that the housing bust permanently altered the employment landscape.
But check out this chart, which we actually got while watching a lecture from economist Scott Sumner.
Housing Starts vs. The Unemployment Rate
Housing construction began a brutal plunge starting at the end of 2005. And yet, the huge uptick in unemployment didn’t really begin until early 2008. That’s a huge gap you wouldn’t expect to see if the high unemployment rate were just a function of the end of the housing/construction economy.
Again, it argues against the idea that with the collapse in housing, the economy went through this huge structural shift that we can’t hope to dig our way out of.
Now granted, the housing collapse has had a lot of follow-on impact, especially as it related to the financial collapse, and the subsequent shocks to the economy.
The point is not that the housing bust didn’t matter, the point is that you can’t just say: Well we’re not building houses anymore, and so that’s why all these millions of people will inevitably remain unemployed.