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Thursday, March 24, 2011

"It's Not Structural Unemployment"

Rebecca Wilder:

It's not structural unemployment, it's the corporate saving glut, by by Rebecca Wilder: ...I'd argue that ... the corporate saving glut is ... creating high and persistent unemployment. Some economists are wrongly referring to this as higher structural unemployment...
The chart below illustrates a simple univariate regression of the unemployment rate on the corporate saving glut. The correlation is very strong, 71%, and suggests that the structural unemployment rate is less than 5.8%. Furthermore, while the unemployment rate seems to be perpetually higher than normal (the upper-right circle), that perfectly coincides with a high corporate saving glut.
If the corporate excess saving glut just equaled zero, i.e., firms invested and saved at the same rate, the unemployment rate would be 5.8%. Now, if the corporate saving glut fell below zero to -2%, i.e., firms reinvested in the economy by way of capital investment in excess of saving, the simple model implies an unemployment rate of 4.7%.

The government doesn't need to add jobs, per se, the government needs to figure out how to get corporate America to drop the saving glut and re-invest in the economy.

    Posted by on Thursday, March 24, 2011 at 12:24 AM in Economics, Saving, Unemployment | Permalink  Comments (43)


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