Wednesday, May 7, 2014

[NJFAC] persistence of long-term unemployment

US unemployment: A long-term trap

By James Politi, Financial Times, April 30, 2014

The level of extended joblessness is dangerously high, with grave consequences for the economy

....The stubborn persistence of long-term joblessness – more than six months without a job – has emerged as one of the defining features of the US economy in the aftermath of the financial crisis and recession.

While short-term unemployment has essentially returned to its pre-recession levels of about 4 per cent, it is elevated long-term unemployment that has kept the overall US jobless rate well above the 5.5 to 6 per cent level that many economists believe to be consistent with America's traditional economic potential.


According to the March jobs report, there were 3.7m Americans who have been without work for 27 weeks or longer. This represents 35.8 per cent of the overall pool of the unemployed, still well above pre-recession levels of around 18 per cent but below the peak of about 45 per cent four years ago. America used to have a share of the long-term unemployment far below the average of other advanced economies but by 2012 it had almost closed the gap with the mean for OECD countries.

The alarm bells grew louder in Washington last month after Alan Krueger, a Princeton economist and former senior aide to Barack Obama, released research showing extremely grim prospects for the long-term unemployed.

Among workers who had been unemployed for more than six months between 2008 and 2012, only 36 per cent were employed a year later, with 30 per cent still without work. The remaining 34 per gave up looking for a job and dropped out of the workforce altogether. Even more troubling, only 11 per cent had found stable, full-time employment for at least four months, Mr Krueger's study found.

"The longer somebody is jobless, the lower the chances they are going to find another job," says Keith Hall, a former commissioner at the Bureau of Labor Statistics now at George Mason University. "I worry that we are creating a group of people who are – I'm not going to say unhirable – but who are going to find it very difficult to ever get back into the labour force," he adds.

. . .

The main culprit of America's long-term unemployment problem is the depth and ferocity of the recession. But its failure to return to its pre-recession levels after five years of recovery has led to a flurry of studies by economists seeking to explain its stubbornness.

Some have pointed to discrimination as an important factor. In 2012 Rand Ghayad, a doctoral student at Northeastern University in Boston, sent out nearly 5,000 fictitious CVs and found a systematic bias against the long-term jobless, even when their qualifications were similar to those who had been out of work for less time.

"Employers are facing a huge pool of applicants and they can't hire everybody – so they have to pick the right person and unfortunately they think the length of time you have been out of work has to do with how productive you are on the job. They are using the length of unemployment as a symbol of productivity," says Mr Ghayad.....

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