MENZIE CHINN directs us to an excellent new paper from the OECD (actually a chapter from its forthcoming economic outlook) on the crisis of sustained, high long-term unemployment. It's worth a read; I wish I could quote whole swathes of it. One key point that is reiterated in the report is the fact that high unemployment is mostly due to an historically low rate of exit from joblessness. Previous deep downturns were characterised by a straightforward pattern of joblessness: lots in, then lots out. This time around lots went in, and inflow to unemployment then returned to (near) normal levels. But almost no one is getting out.

America is unusual, though not unique, in the extent of its long-term unemployment problem:

Spain and Ireland look a lot like America in terms of the increase in long-term joblessness experienced in this recession, though both started with a more serious long-term unemployment problem. One potential conclusion, then, is that property booms and busts may play a role. Several mechanisms might account for the relationship between property busts and long-term unemployment. It could simply be the case that construction often absorbs a lot of lower-skill labour, and given the existence of a major property supply overhang the duration of construction-industry weakness is sure to be long, which in turn will mean long spells of joblessness for lower skill workers. One does has to ask, of course, why those labourers can't temporarily be put to work elsewhere, in the service sector, for instance.

Another possibility is that during the property boom, labour costs for low-skill workers were bid up, and given nominal wage inflexibility it is difficult for the economy to reemploy these individuals (absent a helpful bout of inflation). If this is the case, there are some encouraging signs in the data:

Encouraging, that is, for Ireland, America, and Spain. Unit labour costs in those countries have been falling over the past few years. As recovery continues, employers may find hiring a more attractive option in these places. In Portugal and Greece, by contrast, labour costs have actually risen faster in the post-crisis period than in the pre-crisis period. That's not a good sign for those economies, given how important external demand will be for near-term growth. Ireland may be unable to avoid a debt restructuring thanks to its massive bank obligations, but if I were looking for another reason to separate Spain from the pack of euro-zone hardcases, this would be a big one.