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High Unemployment? It’s Poor Sales, Stupid

The high unemployment rate that has marked the recession in the U.S. and plagued small businesses is not a result of a mismatch of workers' skills and jobs requirements, as many in the mainstream media have reported. It's caused by poor sales, according to a new report.

Also known as structural unemployment, it occurs where there is a pronounced disconnect between the types of skills that workers have and the skills that employers need. Cyclical unemployment, on the other hand, is usually due to such factors as lack of demand.

The distinction is important. Remedying cyclical unemployment usually calls for initiatives to stimulate demand and cut spending, while the solution to structural problems requires longer-term measures such as education and retraining for workers.

The Center for Economic and Policy Research (CEPR), a progressive think tank, reviewed data from the National Federation of Independent Business (NFIB) and said it showed that structural unemployment is not what is ailing the economy.

The CEPR researchers looked at survey data from the NFIB’s monthly survey from December 2007 ( which marked the start of the recession) to January 2011. Each month, the group asked its sample of small businesses to state the single most critical problem facing their business.

“Since the recession began, respondents overwhelmingly have cited ‘poor sales,’ suggesting that today’s unemployment is primarily due to a lack of demand ,” CEPR’s Sairah Husain wrote. “’Quality of labor,’ the factor most consistent with structural unemployment, barely made the list.”

The NFIB data, she wrote, also discredited the notion the notion that a lack of access to credit was an explanation for the continuing weak economy.

“’Finance and interest rates have never been the main problem facing more than 5 percent of small businesses,” she wrote.

The current high unemployment rate in this country is due to cyclical, not structural factors,” she concluded.

“According to [economist John Maynard Keynes], the solution to decreased demand as exhibited by ‘poor sales’ is more government spending, not less,” Husain wrote.

Reach BusinessNewsDaily senior writer Ned Smith at nsmith@techmedianetwork.com. Follow him on Twitter @nedbsmith.

Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.