The number of people who have joined the ranks of long-term unemployment has spiked to a record high in a worrying sign of the economic recovery’s health.
According to the Labor Department, the number of people out of work for more than 27 weeks increased to 2.4 million in September, an increase of 32.5 percent from the previous month. There are 4.9 million people who have been unemployed between 15 and 26 weeks.
Workers who have been separated from their jobs for more than 6 months typically have a more difficult time getting back to work even once the economy improves.
“Last week we saw the biggest spike in long-term unemployment since they started measuring long-term unemployment,” said Michele Evermore, senior researcher and policy analyst at the National Employment Law Project.
The number of long-term unemployed workers is expected to rise in the months ahead, something likely to be exacerbated by President Trump’s decision to scrap talks with Democrats on a COVID-19 economic relief bill before the elections. The talks were aimed at restoring at least some of the supplemental federal unemployment benefits that dried up at the end of July.
Without a new relief package, small businesses hoping for another round of forgivable loans will be left in the dust. The travel, leisure and entertainment sectors, in particular, may face closures and additional layoffs as colder weather makes dining and entertaining outdoors difficult.
Even if the pandemic comes under control, it could take years to return to earlier employment levels.
“It’s bad news,” said Evermore. “It’s hard on people to be unemployed for such a long time. It’s hard on their mental health, it’s hard on their children’s performance in school, and it makes their employment prospects much worse in the future.”
The spike in long-term unemployment comes as the overall unemployment rate, which hit a high of 14.7 percent in April, dropped to 7.9 percent in September. The economy has only restored about half of the jobs lost since the spring and remains at a deficit of 10.2 million jobs compared to February.
Federal Reserve Chairman Jerome Powell on Tuesday cited the swelled ranks of the long-term unemployed as a primary reason more government support was necessary.
“There is a risk that the rapid initial gains from reopening may transition to a longer than expected slog back to full recovery as some segments struggle with the pandemic’s continued fallout,” he said in a speech urging Congress to pass more fiscal stimulus.
Powell also noted that the recovery thus far has been uneven, with low-wage service jobs typically filled by women and racial minorities taking the brunt of the losses.
In August, employment for the poorest quarter of the wage earners was down 21 points compared to just 4 percent for other workers.
The reason long-term unemployment has spiked is simple: More than 26 weeks have passed since the pandemic began, meaning that the tsunami of people who lost their jobs in the early days of the lockdowns are now reaching the long-term milestone.
But the fact that so many people have remained on the unemployment books for so long is a worrying sign for the economic recovery.
House Speaker Nancy Pelosi (D-Calif.), who had been pushing for hundreds of billions more in relief funds than the GOP was willing to agree to, slammed Trump for pulling the plug on the negotiations, citing Powell’s analysis.
“Trump is wedded to his $150 billion tax cut for the wealthiest people in America from the CARES Act, while he refuses to give real help to poor children, the unemployed and America’s hard working families,” she said.
Pelosi appeared to be referring to a CARES Act provision, scrapped in the House Democratic HEROES Act, that allowed business owners to apply business losses toward nonbusiness income. Trump is under audit for using a similar provision from the Great Recession himself.
Heidi Shierholz, a labor expert at the Economic Policy Institute, says that people who have been unemployed for long periods of time typically have a harder time getting back into the labor market, even when the economy improves.
There are currently millions more unemployed people than job openings in the economy
“Employers still may take it as a sign that you’re not as good of a worker, and unfairly so, if you have a large gap. So you’re more likely to have to take a wage cut,” Shierholz said.
“For those millions of workers, it doesn’t matter how amazing they are, how perfect their job search is, how great their résumés are, they’re just not going to get a job,” she added.
As the economy shifts, people who lost jobs in areas that lost demand will have trouble finding new careers. That disconnect drags on the economy, as does the ongoing financial strain concentrated in a large group of would-be consumers.
“Huge financial hits from reduced income over very extended periods and the fact that employers don’t like to see huge gaps in résumés make it very hard for those workers,” Shierholz added.
The long-term unemployed have one thing going for them: While most states cap unemployment insurance benefits to 26 weeks or less, Congress created a special program to extend benefits by 13 weeks. An existing program for extended benefits automatically adds several more weeks of benefits at times of extremely high unemployment, meaning that many of the long-term unemployed may still have a financial lifeline until early next year.
But unemployment benefits, which are typically designed to push people back into the labor market, account for only a fraction of wages and are not sufficient to keep people afloat. The long-term unemployed or more likely to have used up their financial lifelines, decimating savings accounts and racking up debt.
Evermore said the improved top-line numbers could disguise the depth of the economic recession for certain sectors and give policymakers the false impression more help is unnecessary.
“Because people are seeing the overall number drop, people think everything’s fine, but it’s not fine,” she said.
“This is the reason some communities never recovered from the last recession.”