This past week saw the release of a new report by the Brookings Institution about the long-term unemployed. It was authored by economist Alan Krueger and two of his Princeton colleagues. Truth be told, it is the most thoroughly depressing policy document I’ve read in quite some time.
The two most important takeaway points are these:
— It’s frighteningly difficult for the long-term unemployed to land permanent jobs. Of workers who were unemployed for over 27 weeks or more between 2007 and 2012 and interviewed a year later, only 11 percent had returned to full-time, permanent work. 30 percent were still unemployed and looking for work, and 34 percent had dropped out of the labor force entirely.
— It’s likely that the long-term unemployed will continue to face serious difficulties in finding employment, even if the economy significantly improves. According to the authors, “the long-term unemployment rate has remained elevated even in low-unemployment rate states.” Their findings
suggest that the long-term unemployed will continue to encounter difficulty finding employment even if the unemployment rate continues to fall, although a stronger economy would undoubtedly raise the prospects of the long-term unemployed.
What’s particularly notable, and puzzling, is that the long-term unemployed are not all that different from the short-term unemployed. They are more likely to be over 50, unmarried, and African-American, but in most other respects they are demographically similar to other unemployed people.
It’s hard to say why, exactly, the long-term unemployed are having such a tough time of it. The authors offer two explanations. On the supply side, there’s the possibility that these workers “grow discouraged and search for a job less intensively;” on the demand side, “employers discriminate against the long-term unemployed, based on the (rational or irrational) expectation that there is a productivity-related reason that accounts for their long jobless spell.” It makes most sense to view these explanations not as either/or, but both/and:
statistical discrimination against the long-term unemployed could lead to discouragement, and skill erosion that accompanies long-term unemployment could induce employers to discriminate against the long-term unemployed
The authors refer to the long-term unemployed as an “unlucky subset of the unemployed.” There certainly seems to be a lot of truth to that characterization. The most important question, of course, is what kind of political and policy interventions could help these workers. The authors say that “overcoming the obstacles” that prevent the long-term unemployed from finding jobs will “likely require a concerted effort by policy makers, social organizations, communities and families, in addition to appropriate monetary policy.” But unfortunately, they don’t get a whole lot more specific than that.
The authors “tentatively conclude” that the long-term unemployed exert “exert relatively little pressure on the economy.” The idea is that the long-term unemployed aren’t really significant players in the labor market, so labor markets may actually be tighter than they seem. This theory would appear to lend ammunition to the inflation hawks, who want the Fed to start raising interest rates — a policy that would be bad news for workers’ wages.
Fortunately, Janet Yellen is not particularly sympathetic to the monetary implications of this theory:
The idea that the long-term unemployed are on the margins of the labor market, exerting little pressure on wages or prices, is relatively new. On Wednesday I asked Janet L. Yellen, the Fed chairwoman, what she thought of papers that have reached the same conclusions as Mr. Krueger’s group.
“I think it would be tremendously premature to adopt any notion that says that that is an accurate read on either how inflation is determined or what constitutes slack in the labor market,” she responded. “I wouldn’t endorse — I certainly don’t think our committee would endorse the judgment of the research that you cited.”
It’s hard to find much of anything cheery to say about the report. But at least we have a Fed Chair who continues to take the “maximum employment” part of the agency’s dual mandate seriously.
Otherwise, our failure to alleviate our country’s grave unemployment — and underemployment — problem is a catastrophic public policy failure, with repercussions that are likely to reverberate for decades. Is it any wonder that, a full 57 months into the current economic expansion, 57 percent of Americans still believe we are in are a recession?