Is the cause of unemployment in the US structural or cyclical? This was the question that Reuters columnist Allison Schrager attempted to answer in her column. She wrote that for the government to prescribe the correct policy to curb joblessness, the underlying cause of unemployment must be determined.
Cyclical unemployment would be brought about by low demand stemming from a recession. Structural unemployment, meanwhile, would happen when the jobs won't come back. While Schrager acknowledged that the cause could be both, she said that it would be impossible to determine how much of the recent joblessness is caused by structural or cyclical factors.
The solution varies for each cause. If new unemployment was cyclical then government policy would center on reigniting demand. It would also lower interest rates to encourage firms to expand and hire. If the cause is structural, meanwhile, the solutions would have to put up tax incentives. This would encourage job mobility. The move would provide a wealth cushion that would help facilitate productive job transitions.
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