Economy

Reports: Answers to long-term unemployment remain elusive

by Vicki Needham - 08/20/13 4:03 PM ET

Congressional Democrats have introduced legislation designed to help a wide range of those who have been out of work for more than six months. House Ways and Means Committee Republicans released a report in June on ways to improve the nation’s employment situation.

“Long-term unemployment will decline as U.S. economic growth accelerates, but there is no guarantee that rapid growth will come any time soon,” the report said.

“Further, our policy tools for stimulating the economy are blunt instruments at best. And in the present fiscal and political climate, it is not clear what, if any, steps the federal government will take to hasten job growth.”

The central reason is a prolonged and a deep economic downturn although some argue that the recent labor market difficulties of the long-term unemployed are more structural in nature and are exacerbated by a skills mismatch running through the economy.

In looking at who is most affected, the Urban Institute’s reports found that, relative to currently employed workers, the long-term unemployed tend to be less educated and are more likely to be nonwhite, unmarried, disabled, impoverished and to have worked previously in the construction industry and construction occupations.

Those characteristics are similar to discouraged workers and the newly unemployed, the report said.

“This suggests that solutions that remove barriers to reemployment for the long-term unemployed will also be beneficial for other workers facing some degree of labor market distress,” the report said.

In July, the number of long-term unemployed hovered around 4.2 million, representing about 37 percent of the unemployed.

A separate report released in the spring by the National Employment Law Project (NELP) said that, at the current pace of job creation, the economy won’t get back to pre-recession labor market conditions until 2019.

In fact, this level of persistently high long-term unemployment more than four yeas after the recession officially ended are unprecedented — going into the sixth year of continuous high unemployment.

“This jobs deficit is the one we need policymakers to fill,” the NELP report said.

The extensive evidence on far-reaching negative consequences of job loss is clear — short run income losses, permanently lower wages, potentially worse mental and physical health and higher mortality rates.

Further, parental job loss hampers children’s educational progress and lowers their future earnings, the report found.

Still, the report said the link between the longer duration of unemployment and worse consequences is more tenuous.

“Lower wages and lifetime incomes are associated with longer periods of unemployment, but the reason for the decreasing earnings prospects is not clear,” the report said.

When workers show declining signs of well-being as unemployment duration expands, it is difficult to determine as to whether it is due to increasing loss of lifetime income alone or to time out of work.

“The need to distinguish among competing explanations for the observed patterns is pressing, because different policy responses would be called for depending on which of the potential explanations is the dominant one,” the Urban Institute report found.

“Further research is needed to identify more clearly whether selection, declining reservation wages, human capital depreciation, or some form of employer discrimination seems to be the dominant explanation for lower wages upon reemployment after a long period out of work.”

A clear result of long-term unemployment is that the longer someone is out of work the harder it is for them to find a new job.

After the recession, those who remained unemployed for more than six months saw their chance of finding jobs fall below 15 percent, the report found.

Regardless of the underlying causes of high levels of long-term unemployment, the long-term unemployed may be slow to return to work even as the economy recovers because their skills may have eroded over time and because employers may doubt their abilities.

“It is important to keep in mind that even though many structural factors cannot account for much of the recession-related rise in long-term unemployment, some of those factors have been present and growing in the economy for years,” the report said.

For example, the rapid pace of technological change means that the ways goods are produced and services are delivered are also changing, requiring employers and workers to adapt to those changes.

The rise in the long-term unemployment share at the December 2007 start of the recession was far worse than at any other time in the postwar period, peaking at more than 45 percent of the unemployed.

This compares with a rate of 25 percent during the 1983 recession.

Looking more closely at demographics, the report finds that about 18 percent of the long-term unemployed are high school dropouts compared with 9 percent of employed workers. But 24.2 percent of the newly unemployed and 25 percent of discouraged workers also also high school dropouts.

A similar pattern holds for the highest educated workers: 17.2 percent of the long-term unemployed hold a college degree or higher compared with 34 percent of the employed, 15.5 percent of the newly unemployed, and 14.5 percent of the discouraged, “suggesting that increasing the education and skills of the long-term unemployed could help them find new jobs,” the report found.

As far as jobs go, construction occupations are highly represented among the long-term unemployed (10.6 percent) and the newly unemployed (11.8 percent) compared with the employed (5 percent).

Overall, to the extent that there is elevated industry/occupation skill mismatch, it appears concentrated in the construction sector, the report found.

The report found that blacks, relative to other groups, are disproportionately represented among long-term unemployed and discouraged workers.

They make up 22.6 percent of the long-term unemployed, 10.5 percent of the employed, 25.9 percent of discouraged workers and 15 percent of newly unemployed workers.

Also, single parents are disproportionately likely to be long-term unemployed — they make up 13.3 percent of the long-term unemployed but only 7.6 percent of the employed.

A final household characteristic and consequence of long-term unemployment is poverty.

Among the long-term unemployed, 34.1 percent live in households that are below the poverty line, sharply higher than the 6.9 percent rate for the employed.