If you know someone among the long-term unemployed — a category that includes workers who have been jobless at least six months, but in many cases much longer — you understand what a frustrating and demoralizing experience it is, especially for mid-career professionals and managers in their 40s and beyond. There’s a drill. You polish your resume; you work your network; you apply for openings; you wait. All the while, you try to maintain your enthusiasm and self-esteem. In a society that worships the work ethic and treats jobs as an indicator of social status, being without one is crushing for people who view themselves as responsible and productive workers .
It must be said that, from the perspective of potential employers, not hiring these workers can make sense. The skills they have developed are often highly specialized so that the jobs for which they are a perfect fit — the demanding standard now set by many companies — are scarce. Some of these workers are expensive; they’re accustomed to upper-middle-class salaries and benefits. Companies are understandably reluctant to shoulder the costs in an economy that collapsed in 2008 and hasn’t yet regained its zest. Why take the chance?
Sixty percent of the long-term jobless are 35 or older; 36 percent held professional, technical, managerial and administrative jobs (the rest were scattered in sales, service and blue-collar occupations). The public policy question is, “What can we do about the long-term unemployed?” And the candid answer is, “We don’t know.”
We don’t know because, since World War II, long-term unemployment has not been as big a problem in the United States as it has been in Europe. In Germany, France and Italy, the share of the unemployed who have been jobless for more than six months routinely exceeds 50 percent. By contrast, that share in the United States hit a then post-World War II peak of 26 percent in June 1983 and fell one month later. Now that’s changed. In December 2009, this share passed 40 percent and peaked at 45 percent in September 2011. It remained above 40 percent until October 2012 and is now 35.8 percent.
The great fear is that many of these workers will never find new jobs. Their skills will erode. Their employment networks will become obsolete. They will become so discouraged that they stop looking for work; statistically, the government will no longer count them “in the labor force.” Or they will face discrimination by employers who, scanning the resume of someone jobless for a year, will wonder: What’s wrong with this applicant?
A study by Princeton economists Alan Krueger, Judd Cramer and David Cho is discouraging. Among the long-term unemployed from 2008 to 2012, only 36 percent had jobs 15 months later, the study found. As for the rest, 30 percent were unemployed, and 34 percent were not in the labor force. Even for workers with jobs, success was limited. A third had full-time jobs; the others had part-time or interrupted full-time work.
Disturbingly, the study also argues that labor markets may be tighter than they seem. We could be closer to an inflationary wage-price spiral than the relatively high unemployment rate (6.7 percent in March) suggests. With a lot of unemployed workers, competition for jobs should prevent an inflationary wage surge. But, says the study, the long-term unemployed are so much “on the margins” that they only weakly influence wages. More important is short-term unemployment of less than six months. If it’s low, wage pressures are high; surprisingly, it’s now close to its 20-year average of about 4 percent. This could cause the Federal Reserve to tighten credit to prevent labor bottlenecks.
Of course, that would be disastrous for the long-term unemployed, because it would probably slow hiring and make finding a job even harder. It’s also unnecessary. Other indicators portray a labor market that isn’t tight, notes David Stockton of the Peterson Institute, formerly a top Fed economist. Employee “quit rates” remain below pre-crisis levels, betraying workers’ fears of finding new jobs if they leave the ones they have. Business “hire rates” are similarly low, reflecting ingrained cautiousness. Involuntary part-time work is two-thirds higher than before the Great Recession. A broad unemployment measure, so-called U-6 (covering the officially unemployed plus involuntary part-time workers and “marginal workers”), is 12.7 percent.
None of this describes an economy close to its productive capacity. We are not on the verge of an inflation breakout. At present, the Fed doesn’t plan to raise short-term interest rates until 2015; for now, that’s the right policy. Some exuberance in labor markets — more hiring, wage gains — would help almost everyone. Long-term unemployment is a huge national and personal tragedy. It’s an idleness trap. We don’t know how to solve it; but we can at least not make it worse.
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