Agreeing to Agree

Job Training: Not a New Idea, But a Good One.Matthew Cameron, at Matt Yglesias's blog, criticizes, sight unseen, President Obama's plan for increased job training:

Although we don’t yet know the specifics of Obama’s speech, its billing as a discussion about “the importance of job training to improving the economy” suggests that the administration remains attached to the idea that the nation’s unemployment crisis is structural rather than cyclical in nature. That unemployment spiked for all education levels following the 2008 financial crisis, however, indicates the economy is plagued by more than just structural unemployment caused by a dearth of human capital. Rather, it is coping with severely depressed aggregate demand. 

Of course, Obama has little say in whether Congress or the Fed acts appropriately. And it is true that job training is a good policy objective for the long-term strengthening of the U.S. economy. But if Obama hopes to convince voters that he cares about the immediate employment situation, he should address the real issue and not settle for nice-sounding speeches that essentially are irrelevant to the average American’s ongoing plight.

The need for monetary stimulus is one of Matt Yglesias's favorite subjects, and while I generally agree with that Matt, I think this Matt is off base.  

First, this is terrible political advice. If the President wants to convince voters that he cares about the immediate employment situation he should eschew blaming estoteric villians like "aggregate demand shocks" and get behind tangible, common sense (if ultimately low impact) policies like job training.  If he wants to do something about the economy then he can work on the Fed through official channels, but he can walk and chew gum at the same time.

Second, the spikes in unemployment Mr. Cameron cites in fact are much more severe for low skill workers. As Tyler Cowen pointed out, it takes an asymmetric shock that disproportionately falls on the low-skilled in order to produce proportionate decreases in unemployment for all skill subgroups. 

Besides, as Mr. Cameron pointed out, job training is good policy!  Low skill workers suffer disproportionately during adverse aggregate demand shocks and even when the economy recovers do not benefit as much as their better educated and more skilled counterparts.  The President is right to advocate for more job training even if the current recession is entirely due to a demand shock.

However, most economists acknowledge that at least some of the increase in unemployment is structural (meaning that some of the unemployed are not qualified for the jobs that are available) Moreover, as the economy continues to shuffle along, structural unemployment becomes that much more problematic since long-term unemployment leads to atrophied skills and may serve as a negative signal to potential employers. Job training provides a bridge back into the work force both by imparting new skills and a signal of work ethic.

I agree with Mr. Cameron that the Federal Reserve should do more to stimulate aggregate demand and the President should do more to stimulate the Federal Reserve, but that's no excuse for knee-jerk criticism of other worthwhile administration economic initiatives.  

Full Disclosure: I applied for Mr. Cameron's job as Matt Yglesias's summer intern.  No hard feelings though, I managed to avoid joining the ranks of the short term unemployed.