Why Is Unemployment Still So High?

In a Xinhua news article, Senior Fellow Barry Bosworth discusses the reasons so many Americans remain jobless. “The problem is not unwillingness to hire,” he says. “It is a lack of aggregated demand and production.”

Why is unemployment still so high?

Bosworth’s expanded answer to this question and others on why the recovery is tepid, and his prediction on the unemployment number in 2014, appears below:

The problem is not unwillingness to hire. It is a lack of aggregated demand and production. Companies do not need more workers. We can see that in the very poor performance of productivity where output is only growing at the rate of employment. Improvements in output per worker are nearly zero.

If the problem was firms holding back on hiring, we would see rapid output growth and output per worker, combined with the low growth in jobs. That is not the case. The lack of output growth is concentrated in three areas: investment (particularly construction), state and local government spending, and exports.

The first two are largely due to continuing effect of the housing crisis—state and local governments became very dependent on property taxes and fees from home sales.

The third is due to the rise in the dollar exchange rate after the crisis and weak world demand for U.S. exports.

The unemployment rate will continue to decline in 2014, but largely because people are leaving the workforce (discouraged workers), not because of growth in jobs. The unemployment rate should be near 6.5% by year end.

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