Tags: El-Erian | unemployment | crisis | permanent

Pimco's El-Erian: US Risks 'Unemployment Crisis' of Lingering High Joblessness

Tuesday, 21 August 2012 10:30 AM

The United States is not battling an unemployment problem, but rather an unemployment crisis marked by too many people out of work for too long that they risk becoming permanently jobless, which could damage the economy, said Mohamed El-Erian, CEO of fund giant Pimco.

Fortunately for the United States, it’s not too late to remedy the situation, though policymakers must act now.

“Our concern is that the longer it takes for the politicians to respond, the more the problems become embedded in the structure of the economy. You see this on the unemployment side. You see it in terms of the duration of unemployment, the long-term unemployment and youth unemployment. These are issues when the unemployed become unemployable,” El-Erian told CNBC.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

While the economy officially emerged from the recession in 2009, unemployment rates have remained stubbornly high, refusing to dip below 8 percent, while growth rates have been sluggish, as well.

People who are out of work for too long become structurally unemployed, which could threaten to make high unemployment rates a more permanent fixture on the U.S. economy.

“That’s why we call it an unemployment crisis and not an unemployment problem, because the worst thing that can happen to the innovation and dynamism of this country is to have structural unemployment embedded in the system,” El-Erian said.

“It’s not too late to turn the corner, but this requires retooling, labor retraining and requires movement on other policy fronts. It’s a long-term problem you want to avoid, because the longer you wait the harder it is to solve.”

A Federal Reserve study shows that the country is battling structural unemployment but adds the condition can be treated by increasing demand for goods and services, meaning industries aren’t disappearing and leaving Americans out of work for good.

About one-third of the jump in unemployment from 5 percent when the economy first began to falter to its 10 percent peak in October 2009 can be traced to a mismatch between the supply of labor and job openings, a Federal Reserve Bank of New York study found, according to Bloomberg, meaning a weak economy is to blame for jobless rates.

“There is still considerable weakness in the labor market,” Aysegul Sahin, one of the authors and a New York Fed economist, told Bloomberg.

“We see that the weakness in the labor market is not specific to certain groups, such as certain occupations or certain locations. This points to a case where labor market weakness can be attributable to the overall weakness in the economy.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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Tuesday, 21 August 2012 10:30 AM
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