Flavius, thanks for the post and the passage from Keynes--which pretty well describes the psychology of the new austerity being yearned for by today's conservatives.

I think that the current group of  "unemployed" is the result of the latest round of boom and bust--something akin to musical chairs. On each new phase of boom and bust, wealth becomes more concentrated and a new component of the "underemployed" is institutionalized.  The low level of domestic investment is the impediment to the underemployed improving their lot.  

Still, Obama, Geithner and Bernanke see no evil in the concentration of assets in the mega banks. Their inability to connect the dots between mega banks and the "underemployed" is astounding. So the boom and bust cycle will occur again, and in the next round of musical chairs more underemployment will be created.

Austerity for the masses is the end game in the method of concentrating wealth in the hands of the few while strengthening monopolies.  Mega banks lead to Boom and Bust. Bust leads to austerity for the underemployed.  The underemployed then work for less wages in the next expansion phase. The cycle repeats.

Keep hope alive! Organize for bank reform.  

I tracked down a few more articles, but they don't agree with each other:

Inside the FOMC

If one digs deeper into the data, the situation seems even more troubling. Since December 2000, the Bureau of Labor Statistics has been keeping data on the job openings rate, which is defined as the number of job openings divided by the sum of job openings and employment. Not surprisingly, when job openings rise, the unemployed can find jobs more readily, and the unemployment rate typically falls. The inverse relationship between unemployment and job openings was extremely stable throughout the 2000-01 recession, the subsequent recovery, and on through the early part of this recession.

Beginning in June 2008, this stable relationship began to break down, as the unemployment rate rose much faster than could be rationalized by the fall in the job openings rate. Over the past year, the relationship has completely shattered. The job openings rate has risen by about 20 percent between July 2009 and June 2010. Under this scenario, we would expect unemployment to fall because people find it easier to get jobs. However, the unemployment rate actually went up slightly over this period.

What does this change in the relationship between job openings and unemployment connote? In a word, mismatch. Firms have jobs, but can’t find appropriate workers. The workers want to work, but can’t find appropriate jobs. There are many possible sources of mismatch—geography, skills, demography—and they are probably all at work. Whatever the source, though, it is hard to see how the Fed can do much to cure this problem. Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers. But the Fed does not have a means to transform construction workers into manufacturing workers.

Of course, the key question is: How much of the current unemployment rate is really due to mismatch, as opposed to conditions that the Fed can readily ameliorate? The answer seems to be a lot. I mentioned that the relationship between unemployment and job openings was stable from December 2000 through June 2008. Were that stable relationship still in place today, and given the current job opening rate of 2.2 percent, we would have an unemployment rate of closer to 6.5 percent, not 9.5 percent. Most of the existing unemployment represents mismatch that is not readily amenable to monetary policy.¹

Given the structural problems in the labor market, I do not expect unemployment to decline rapidly. My own prediction is that unemployment will remain above 8 percent into 2012. Persistently high unemployment of this kind will impose considerable losses on many of our citizens. Good public policy requires that we help mitigate their losses via a well-designed unemployment insurance program. Recent economic research, including some done at the Federal Reserve Bank of Minneapolis, shows that such a program will not feature the termination of benefits after 26, 52, or 99 weeks. Instead, a good insurance program should offer constant benefits over the entire duration of an unemployment spell, however long. It should provide incentives only through the level of those benefits, not through their timing.²

Is Structural Unemployment on the Rise?

Labor demand has been growing in the United States, reflected in a modest increase in private payroll employment this year and a more substantial increase in private-sector job vacancies over the past 12 months. Despite these signs of improvement, the unemployment rate has declined only slightly. Some analysts have raised the specter of a fundamental mismatch between the supply of labor in terms of workers’ skills and demand for labor in terms of employers’ skill requirements. Such a mismatch between available workers and available jobs could increase the level of structural unemployment. To the extent that structural unemployment is actually rising, the phenomenon poses a dilemma for policymakers. It cannot be ameliorated through conventional monetary and fiscal policy. And it implies an increase in the lowest unemployment rate associated with stable inflation, often identified by the acronym NAIRU, which stands for the non-accelerating inflation rate of unemployment.

This Economic Letter examines evidence for increased structural unemployment and a higher NAIRU (see Valletta and Cleary 2008 for additional background discussion). Our analysis suggests a small rise of about 1¼ percentage points in both structural unemployment and the NAIRU, increases that are likely to be transitory, not permanent.

Anyone else notice that the sector with the highest ratio of unemployment from 2010 to 2007 was Information?  Seemed like that would relevant to this audience. 

Can someone explain to me why that ratio indicates that there is no structural unemployment.  Could it not as well mean that what structural unemployment there may be is foundational to the entire economy.   Not saying that is the case; just wondering why not?  Oh, and because it's Paul Krugman is not the answer I am looking for. :)

Krugman's bar chart indicates the sectors with the highest ratios are information and construction, both white and blue collars.   It is not surprising that the loss of confidence in the economy as reflected in unwillingness to invest or hire is across the board.