Monday, March 26, 2012

Long Term Joblessness

We’ve already talked this semester about how the recent recession was characterized by a lot of long-term unemployed, and how that does not bode well for the future evolution of the job market.

There’s more evidence to support this:

Note that the unemployment rate of the short-term jobless has dropped quite a bit more than the rate of the long-term jobless.

It isn't clear why, exactly, the U.S. economy is behaving differently this time. The severity of the recession is certainly part of the explanation. So, most likely, is the boom and bust of the construction industry, which left millions of workers, mostly men, without the skills they need to find new jobs.

There may also be longer-term trends at work. Steve Davis, an economist at the University of Chicago's Booth School of Business, notes that the employment-population ratio had been trending downward even before the recession, as had the rate at which workers change jobs. …

The downward demographic trends are something we’ve already discussed. But the decreased mobility between jobs is probably a result of “credentialism”.

What to do?

There is little agreement on the solution. Traditional economics suggests that structural unemployment doesn't respond to the kind of stimulus measures—government spending, tax cuts, reduced interest rates—that are the standard approach to high cyclical unemployment. But some economists, including Mr. Bernanke, have argued that policy makers should try to jump-start the economy so that the unemployed find jobs before structural problems take root. Others argue that extended unemployment benefits have contributed to the problem by encouraging workers to delay looking for work, raising the risk that they will fall victim to structural unemployment.

So, blaming the 99 weeks of unemployment insurance is probably correct. Not extending it that far in the future is probably a good idea. But, now that we’ve opened that Pandora’s Jar, I can’t recommend cutting those benefits.

Read the whole thing entitled “Time Not On Side of Jobless” in the March 26 issue of The Wall Street Journal.

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