Improvement in Long-Term Unemployment

One feature of the most recent recession, that was different from previous recessions, was the long-term unemployment.

More specifically, short-term unemployment recovered fairly quickly in 2009-2010. The recently unemployed were able to find work just about as easily as they had been before the recession hit.

Not so with the long-term unemployed. Those that were out of work and stayed out of work for a year or two had a much harder time getting back into jobs than in previous recessions.

There are three explanations for that.

One is that when the recession hit, business shed workers who were not very employable first. These people had gotten jobs in the boom because there was no one else to hire. The economy isn’t back to that point, and those people are still without jobs.

A second explanation is structural unemployment. The long-term unemployed are likely to still be unemployed after a few years because the jobs they had have been eliminated, and are not coming back.

A third explanation is that the generosity of unemployment benefits discouraged people from looking for work.

There is some evidence that this situation is improving.

The charts that accompany the article are a bit confusing to the unaided eye. Check out this one:

Clearly it shows improvement for both short-term and long-term unemployment. But it is missing the “compared to what'” part. It’s scaled so that 0 (on the left) is the worst that the unemployment got at the end of 2010. From there, moving in negative direction means that unemployment is going down. But … how far can or should it go?

Consulting the BLS website, at the end of 2010 there were 6.428 million long-term unemployed. It is now down to 4.766 million. That figure was as low as around 1.1 million in 2006. That works out to about –83% on this graph. So, we’ve made some headway, but there’s a long way to go.

The short-run unemployed are everyone else: 7.926 million at the end of 2010. This figure got down to about 5.6 million in 2006. That’s about –30%. Again, we still have a long way to go.

Here’s the second graphic, composed of a number of charts.

The chart along the bottom tells the story of the first explanation given above. The vertical axis is the average duration of unemployment. For it to go up, people have to be out of work longer. Note how it rises steeply after the recession. The way this happens is if people were pushed out of jobs during the recession, and not rehired after the recession — so that the duration of some of the unemployed was going up with each month. Only lately has then started to change … and not quickly.

The two charts at the top tend to support the third argument. Note that there has been a decline in the number of unemployed who are in the range, 1-3 years, where conceivably their benefits are running out. But, this data also supports the first explanation: for those unemployed more than three years … those who’s benefits expired long ago … there’s still not much tendency to be back to work.

It’s an open question how the proportions of those hard-core unemployed split between 1) people with weak skills who are less likely to be rehired, or 2) people without skills for the jobs that the economy still has.

From the article “Long Term Jobless Begin to Find Work” in the January 11 issue of The Wall Street Journal.