I had reason today to re-read this post of Peter Lewin's from September on the Lazear and Speltzer stuff denying that we have a structural unemployment problem. Peter seemed somewhat befuddled by their argument and I think he's groping toward an Austrian response. In re-reading it, I think I perhaps have a better one. This is off the top of my head, but I share it below for reaction. This was taken from an email I sent to a non-Austrian, which explains some of the rhetoric.
I think the language of “structural” unemployment is often unhelpful when Austrian types are in the conversation. The idea of skills not matching needs presumes that we know what those needs are and know that workers don’t have the skills to meet them. For Austrians, the problem is deeper. We had an artificial boom for the better part of a decade (longer perhaps) that created all kinds of distortions in the capital structure, and those in turn made certain kinds of labor more valuable, and that, in turn, led to a (long run) distorted pattern of investments in human capital.
The problem now is that we don’t know where that capital and labor should be allocated and only market discovery processes can figure it out. As we continue, during the recovery, to make it difficult to engage in that reallocation (or “recalculation” as Arnold Kling has termed it), we may or may not be “getting it right.” The fact that labor is coming back to the very industries that it was engaged in during the boom is, to the Austrians, not a sign of a lack of a “structural” problem, but rather evidence that such a problem is continuing.
In other words, as Austrians insist, the long-run structural problem is created in the boom itself. Those are the errors, but they are masked over for a while by the excess of credit, which allows them to persist. When the boom ends, the errors are clear and it takes time to clean them out and figure out what we should do next. The only way out of this is to let markets work to sort it all out and discover where labor and capital should be. It’s highly unlikely that pattern would look like the distorted structure of the boom.
The problem is that we can’t know what the “needs” are and to assume they are the same as during the boom is to take the boom period as “correct,” which is exactly what the Austrians deny.