The Unemployment Number to Fear Most

However, one aspect
of the current jobless problem has no precedent in the data. In June,
the long-term unemployment rate, defined as the percentage of the labor
force that has been jobless for more than half a year, hit its highest
point since 1948, when the Bureau of Labor Statistics began data
tracking. The numbers improved only slightly during July and August.

A
glance at the second chart below shows just how out-of-whack the
long-term jobless rate has become. Perhaps more unsettling is the
average number of weeks of unemployment, shown on the third chart.

"A number of factors can affect the
long-term unemployment rate, including the reservation wage and the
savings level," says Randy Ilg, an economist with the BLS. The
reservation wage is the lowest wage at which a worker will accept a job
offer. An optimistic reading of the numbers might hold that many
workers, unimpressed with available jobs, have been simply holding out
for better ones while living off savings. If that's the case, the recent
dip in the long-term unemployment rate might signal a lowering of the
reservation wage – an increased willingness of job-seekers to accept
disappointing salaries.

Government might have had a hand in the
problem, too. Unemployment payments for laid-off workers typically last
26 weeks. When jobs are scarce, states make available at least 13 weeks
of extended benefits, and some offer up to 20 weeks, for a maximum
collection period of 46 weeks. Record extensions created since 2008 have
allowed for up to 99 weeks of benefits lasting until April 2011 – and
increase the dollar amount for all recipients.

Those measures have
surely kept some struggling families from slipping into poverty. The
problem is, they've also likely increased the unemployment rate by at
least a modest amount. According to estimates by the Federal Reserve
Bank of San Francisco, the headline unemployment rate of 10.0% at the
end of 2009 would have been 9.6% if not for the additional benefits
extensions.

One more possibility, presented by a trio of
researchers earlier this year, has to do with a breakdown of something
called the Beveridge curve, named for British economist William
Beveridge. It shows an inverse relationship between the job vacancy rate
and the unemployment rate. A high unemployment rate, after all,
logically suggests that there are few job openings. The researchers
point out that the unemployment rate has recently been higher than the
Beveridge curve suggests it should be (which helps explain why a
technology manager recently complained to me about being unable to fill
programmer positions). "An important concern for the strength of the
recovery is that, even if firms create new jobs, it will be harder to
match workers with the appropriate job openings," the authors note.

In
other words, America's long-term jobless might be unlucky, unwilling,
unskilled or some combination of the three. Whatever the reason, the
longer they lack work, the harder it will be for them to find it again.