Economic Report of the President

CHAPTER 2The Dual Problems of Structural andCyclical UnemploymentUNEMPLOYMENT IS THE MOST SERIOUS ECONOMICPROBLEM now facing the United States. By December 1982 thenumber of unemployed had risen by more than 4 million since thebeginning of the recession in July 1981. The unemployment rate washigher in December 1982 than at any point since the Depression,with over 12 million persons counted as unemployed. Even after theeconomy recovers from the recent recession, it is likely that the unemploymentrate will reach a plateau between 6 and 7 percent.This chapter analyzes the two major types of unemployment: cyclicaland structural. The high level of cyclical unemployment now prevailingin the United States is a major problem, but it should provetransitory. Only a healthy and sustained recovery from the recent recessioncan effectively diminish cyclical unemployment. Even afterfull recovery, however, a serious structural unemployment problemwill remain unless measures are taken to improve the functioning oflabor markets. Reducing structural unemployment will require attackingthe special problems of young people and the long-term adultunemployed.This chapter begins by describing the dimensions of the cyclicaland structural unemployment problems. It then examines the potentialof public employment programs and macroeconomic policies tolower cyclical unemployment. Finally, policies for reducing structuralunemployment are considered.THE RECENT RECESSIONThe unemployment rate in December 1982 stood at 10.8 percentof the civilian labor force. Since the recent period of economic slack thatbegan in January 1980, the unemployment rate has risen by 4.5 percentagepoints. During the recent recession, which began in July1981, the unemployment rate rose by 3.6 percentage points.Historical experience suggests that the unemployment rate tends toincrease for several months after the level of production bottoms out29