Long-term Joblessness Reaches New High

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 six 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 six 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 six 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 six 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 six 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.