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Global Economics

The U.S. Long-Term Unemployment Crisis StumpsEconomistsByPeter Coyon February 07, 2013

Michelle Hall, 44, hasnt worked since last June, when funding ran

out for her administrative job at Peaceful Acres Horses, a sanctuary

in Pattersonville, N.Y. She applies for jobs online and usually hears

nothing. Its a feeling of what Ill call emptiness, she says. I have a

lot of skills that are very applicable across the board, from file clerk

to middle management.

Hall is the face of a new problem that remains poorly understood:

chronic, long-term unemployment that continues even as job growth

resumes across the economy. The rate of short-term

unemploymentsix months or lessis almost back to normal. In

January it was 4.9 percent of the labor force. Thats only

0.7 percentage point above its 2001-07 average. But the rate of long-

term unemployment, 3 percent in January, is precisely triple its

2001-07 average, according to aBloomberg Businessweek calculationbased on Bureau of Labor Statistics data. (Those two rates

4.9 percent and 3 percentadd up to the overall unemployment rate

of 7.9 percent.) A striking statistic: The long-term unemployed make

up 38 percent of all workers without jobs, double the average share

and just a few notches down from the 2010-11 peak of 45 percent.

Economists are puzzling over what has changed. Is it generous benefits that make it

easy to stay unemployed? Or erosion of skills that render people unemployable? Or

discrimination by employers? Peter Diamond, an economist at Massachusetts

Institute of Technology who received a Nobel prize for his work on labor markets,

says that regardless of the causes of long-term unemployment, the harm it causes

justifies strong efforts to stimulate the economy, so even the long-term jobless are

absorbed. Other public policy problems, he says, take second place. We have an

unemployment crisis and only a debt problem, Diamond says.
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One way to visualize this issue is to compare U.S. unemployment with job openings

since 2001. The result can be seen on theattached chart: a scorpion-shaped curve

that tracks the swelling ranks of the long-term jobless. The charts creators were

Rand Ghayad, a Ph.D. candidate in economics at Northeastern University, and his

adviser, labor economist William Dickens. Their work was part of a report theywrote that was published last year by the Federal Reserve Bank of Boston. It was so

striking that the Boston Fed named Ghayad a visiting fellow.

Ghayad and Dickens show unemployment only for people out of work more than

six months. The chart depicts a conventional pattern until the summer of 2009:

Job openings became scarce, and unemployment rose. After that, more jobs began

to open up, but long-term unemployment kept rising. The long-term jobless rate

has fallen a bit over the past year but is still far higher than it was the last time

there were this many openings, from 2003 to 2004.

Ghayad sent out fictitious rsums to employers in 50 metro areas to see how they

reacted to long spells of unemployment. He found that an applicant out of work

more than six months had little to no chance of being called back. The rsums of

those out of work for less than six months drew more interest when they showed

the applicants had relevant industry experience. At more than six months of no

work, having industry experience didnt help at all, Ghayad found.

Even if employers do pass over the long-term unemployed, thats not prima facie

evidence of illegal discrimination. Employers could arguerightly or wronglythat

being out of work signals something is wrong. Its not illegal in most states for

companies to factor in an applicants job status when filling a position. It would

have been under President Obamas American Jobs Act, which was introduced in

2011 but has been blocked by Republican opposition.

The optimistic take is that the bulge is the result of an unusually deep recession and

will shrink with time and growth. Picky employers will have to hire the long-term

unemployed once the economy fully recovers and the labor market tightens. Thats

why MITs Diamond favors more fiscal and monetary stimulus. We could cure our

problem in fairly short order if we had an adequate stimulus, agrees Steven Kyle,

an economist at Cornell University.
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The pessimistic take is that the jobs arent coming back. Andy Stern, former

president of the Service Employees International Union, says the long-term

unemployed are among the first to suffer from what he predicts will be a more

generalized job drought, which will be the result largely of automation. Says Stern,

who stepped down from the SEIU in 2010 and is a senior fellow at ColumbiaUniversitys Richman Center for Business, Law & Public Policy: You aint seen

nothing yet.

The bottom line: Thirty-eight percent of all the jobless in the U.S. have been

unemployed for six months or more, according to the Labor Department.

CoyisBloomberg Businessweek's economics editor.
mailto:[email protected]:[email protected]:[email protected]

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