The Washington Post

Will the long-term and shadow unemployed ever come back?

REUTERS/Kevin Lamarque

The recession created millions of long-term and shadow unemployed, and the question is whether the recovery will bring them back.

Now, as Fed Chair Janet Yellen testified before Congress, there are still plenty of reasons to think there's plenty of slack left in the labor market. There are the part-time unemployed, who have jobs but can't find the full-time ones they want. Then there are the long-term unemployed, who have been looking for work for six months or longer and have trouble getting companies to even read their resumés anymore. And finally, there are the shadow unemployed, who have given up looking but would take a job if they could find one. This all adds up to a much weaker economy than the headline 6.1 percent unemployment rate suggests. And it's why wage growth has stayed so weak even though things have started to pick up a bit.

The hope, of course, is that a stronger recovery will suck in more of these marginalized workers. But how realistic is that? Well, it's not clear. On the one hand, there is evidence that a better job market does help the long-term unemployed, despite the discrimination they face in the hiring process. You can see that in the chart below from a recent Fed study. It shows each state's short-term and long-term unemployment rates compared to their pre-recession averages. In general, the more a state's short-term unemployment rate has fallen, the more its long-term one has too—and that's mostly because of people finding jobs, not dropping out.

LTU States2.jpg

But, on the other hand, there isn't much—or any, really—evidence that a better job market brings back more of the shadow unemployed. As you can see in the chart I made from FRED, there's basically no relationship between the unemployment rate and the percent of people not in the labor force who either get or start looking for a job. And by "basically no relationship," I mean an R-squared of 0.00099.


It doesn't matter if unemployment is 5 or 6 or 7—or even 10 percent. The percent of people entering the labor force doesn't really change: it's always somewhere between 7 and 8 percent. Now, that doesn't mean nothing changes. When unemployment is low, more people move from out of the labor force into jobs. And when it's high, more of them move into unemployment—they start looking for work, but can't find it. You can see that in the chart below that former CEA Chair Alan Krueger has highlighted.

Discouraged Workers

What explains this? Well, during the good times, the people entering the labor force are probably students looking for and finding jobs. But during the bad times, kids stay in school as long as they can to hide out from the recession, and the people entering the labor force are ones who didn't expect to work but need to now. Maybe their spouse got laid off, or maybe their 401(k) got vaporized—in either case, they start looking for jobs that aren't there.

You might expect this time to be different—with more discouraged people returning—because this recession was different. But there's no sign of that yet. In fact, people are entering the labor force at a lower rate today than at any other time in the past 25 years. Part of that might be because more of the people not in the labor force are retired, but still, there's been no bounceback.

The depressing lesson might be that there's a high cost to letting the short-term unemployed become long-term unemployed and then shadow unemployed. That cost is careers lost, forever.

Matt O'Brien is a reporter for Wonkblog covering economic affairs. He was previously a senior associate editor at The Atlantic.



Success! Check your inbox for details. You might also like:

Please enter a valid email address

See all newsletters

Show Comments
Most Read



Success! Check your inbox for details.

See all newsletters

Your Three. Videos curated for you.
Play Videos
From clubfoot to climbing: Double amputee lives life of adventure
Learn to make traditional soup dumplings
Deaf banjo player teaches thousands
Play Videos
Unconventional warfare with a side of ale
The rise and fall of baseball cards
How to keep your child safe in the water
Play Videos
'Did you fall from heaven?': D.C.'s pick-up lines
5 ways to raise girls to be leaders
How much can one woman eat?
Play Videos
How to get organized for back to school
How to buy a car via e-mail
The signature drink of New Orleans
Next Story
Jason Millman · July 15, 2014

To keep reading, please enter your email address.

You’ll also receive from The Washington Post:
  • A free 6-week digital subscription
  • Our daily newsletter in your inbox

Please enter a valid email address

I have read and agree to the Terms of Service and Privacy Policy.

Please indicate agreement.

Thank you.

Check your inbox. We’ve sent an email explaining how to set up an account and activate your free digital subscription.