The Problems of the Long-term Unemployed

From National Journal | May 10, 2010

Gary
Burtless Chair in Economic
Studies, Brookings Institution

The number of long-term unemployed reached an all-time peak in
April, both absolutely and as a percentage of the nation's unemployed.
According to the most recent BLS employment report, 6.7 million
Americans have been jobless for at least 6 months. Longtime job seekers
now represent 46% of the unemployed, an astonishingly high percentage.
To put this number in perspective, in previous recessions the peak
fraction of unemployed who have been unemployed longer than 6 months is
rarely more than one-quarter of the unemployed. In the worst post-war
recession, which occurred in President Reagan's first term, the
percentage of unemployed workers jobless longer than 6 months reached a
peak of less than 26%.

These statistics indicate that jobless workers face unprecedented
problems finding new jobs. New research by Michael Elsby, Bart Hobijn,
and Aysegul Sahin, forthcoming in the Brookings Papers on Economic
Activity, shows that the rate of exit from...

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The number of long-term unemployed reached an all-time peak in April,
both absolutely and as a percentage of the nation's unemployed.
According to the most recent BLS employment report, 6.7 million
Americans have been jobless for at least 6 months. Longtime job seekers
now represent 46% of the unemployed, an astonishingly high percentage.
To put this number in perspective, in previous recessions the peak
fraction of unemployed who have been unemployed longer than 6 months is
rarely more than one-quarter of the unemployed. In the worst post-war
recession, which occurred in President Reagan's first term, the
percentage of unemployed workers jobless longer than 6 months reached a
peak of less than 26%.

These statistics indicate that jobless workers face unprecedented
problems finding new jobs. New research by Michael
Elsby, Bart Hobijn, and Aysegul Sahin, forthcoming in the Brookings
Papers on Economic Activity, shows that the rate of exit from
unemployment reached a new post-war low in the current recession, though
there has been some improvement in recent months. (The unemployment
exit rate is simply the percentage of unemployed workers at the start of
a month who are no longer unemployed at the end of the month.) The
unemployment exit rate always falls in a recession. It simply fell much
more steeply in this recession than in any other post-war recession.

Elsby and his colleagues emphasize that the long-term unemployed have
not been specially singled out for misfortune. The unemployment exit
rate fell sharply for newly jobless workers as well as for workers
already unemployed 6 months or longer. Because the short-term unemployed
found it harder to obtain a job, we have seen a marked increase in the
percentage of laid off workers who remain unemployed for 27 weeks or
longer.

Workers who have already been unemployed for at least 6 months find
it harder to get a job than workers who have just been laid off or have
been unemployed for only one or two months. There are a couple of
reasons for this. One is that laid off workers who have
better-than-average job prospects tend to leave the ranks of the
unemployed fairly quickly. This means that unemployed workers with
longer-than-average unemployment durations usually include high
concentrations of workers who had worse-than-average job prospects when
they were initially laid off. Another possible reason for low exit rates
among the long-term unemployed is that the lengthy duration of their
unemployment spell may actually hurt their chances of landing a job.
Employers might discount the job skills of the long-term unemployed
compared with the newly unemployed. If personnel officers must decide
between two job applicants with identical education and work experience,
they may hire the worker who lost a job most recently under the theory
that a long unemployment spell indicates some kind of problem with the
other job seeker's skills or motivation.

Compared with other rich countries the United States has a good
record of keeping average unemployment spells brief. Among the 21
wealthiest OECD countries, only Canada, New Zealand, and Norway had a
smaller percentage of long-term unemployed in their jobless populations
in 2008. In that year only about 20% of unemployed workers in the United
States had been jobless for 6 months or longer. In Europe the
comparable percentage was about 55%. Part of the U.S. success in holding
down unemployment durations is traceable to meager social protection
for the long-term unemployed. In ordinary times Americans qualify for a
maximum of 6 months of unemployment benefits. This benefit limit
is shorter than the limit in other rich countries. When regular
unemployment insurance comes to an end, social protection for America's
long-term unemployed is quite low compared with what is available
elsewhere.

In the current recession Congress has temporarily extended and
improved unemployment benefits. For laid off workers in states which
have average or above-average unemployment, jobless benefits can last
almost two years. This is more generous than the temporary protection
available in previous recessions. (The previous maximum allotment was 65
weeks of benefits, available in 1975 and 1976.) The increased
generosity of unemployment benefits has probably boosted the current
level and average duration of U.S. unemployment, though the effects have
been small. Some unemployed Americans who would have dropped out of the
labor force and stopped looking for a job have kept looking because
that is a requirement for collecting unemployment benefits. It is less
clear whether the expansion in unemployment benefits has reduced the
number of employed Americans. At the moment there are many more
unemployed workers who do not qualify for unemployment benefits than
there are new job openings. Even if an unemployment insurance recipient
turns down a job opening, there are many other job seekers (with and
without unemployment benefits) who are eager to take the job.

In addition to offering long-duration unemployment benefits, another
approach to dealing with the problems of the long-term unemployed is to
offer them targeted access to publicly created temporary jobs. Congress
adopted this policy in the Great Depression and to a more modest extent
in the 1970s. The policy has fallen from favor because many people
inside and outside the government are skeptical of the value of goods
produced in temporary public-employment programs. In the absence of new
programs targeted specially on the long-term unemployed, the best
policies to mitigate their woes are policies that induce faster overall
employment growth. Even with a falling unemployment rate the fortunes of
the long-term unemployed will lag behind those of the rest of the
population. Nonetheless, the experience of the past three decades shows
that the benefits of a strong recovery will eventually spill over to the
long-term unemployed.