Policy Feature Issue: Long-term Unemployment
Three weeks ago, the April monthly jobs report indicated signs of improvement. The Bureau of Labor Statistics reported that unemployment rate decreased from 7.6 percent in March to 7.5 percent in April. However, as referenced in previous issues, the drop in the unemployment rate is deceiving. April’s labor force participation rate (LFPR) and employment-population ratio (EPR) reveal a much different picture of the economy’s strength. Another key indicator determining the strength of the current economic recovery is the number of individuals who are considered “long-term unemployed”. Analyzed together with the LFPR and the EPR, long-term unemployment is important in understanding exactly how frail the current recovery is.
What is Long-term Unemployment?
The Bureau of Labor Statistics defines the “long-term unemployed” as active participants in the labor force who have been unemployed for more than 27 weeks. This number does not take into account those workers who have dropped out of the labor force and stopped looking for work. The current size of the long-term unemployed population is attributable to a weak economic recovery. Low aggregate demand for goods and services has resulted in reduced hiring. There are also structural factors that contribute to long-term unemployment, including a population that does not have the skills necessary to transition to available jobs and geographic immobility.
Facts You Need to Know:
- Though the unemployment rate dropped between March and April, approximately 4.4 million Americans have been without a job for 27 weeks or longer, representing 37.4 percent of the total unemployed population. This is down only slightly from March when they accounted for 39.6 percent of the populations. This number is still more than triple the 1.3 million long-term unemployed at the start of the recession in December, 2007.
- Over the past 12 months, the number of long-term unemployed has decreased by 687,000, but their share of the unemployed has decreased by only 3.1 percent.
- The average unemployed person has been out of work for 36.5 weeks, down from 40.7 weeks in December, 2011. At the beginning of the recession, the average duration of unemployment was 16.6 weeks. The peak average duration of unemployment (40.7 weeks in December 2011) has been 20 weeks longer than the most recent recovery.
- According to Generation Opportunity, a non-partisan youth advocacy organization, unemployment among youth (aged 18-29) stands at 11.1 percent. However, when adjusted for a declining labor force participation rate, the effective unemployment rate among young people is 16.1 percent. This means that nearly 1.7 million young adults who were once considered long-term unemployed have given up looking for work due to a lack of economic opportunity. This is the highest sustained rate since World War II.
Why Does a “Pro-Growth” Agenda Matter?
Economic growth is the primary driver of job creation and employment in the United States. Though the administration points to decreasing unemployment as a sign of economic strength, it fails to recognize the unprecedented weakness of the current recovery and the current disincentive to reentering the workforce. Current economic growth and job creation are barely sufficient to sustain normal population growth. Moreover, slow economic growth has also hindered the creation of millions of jobs necessary to combat long-term employment. It is only through real economic growth that the jobs necessary to speed the recovery, broaden the tax base, and instill confidence in labor market will be created.
It is also important to mention that many of the long-term unemployed lack the skills necessary to transition back into the workforce particularly in emerging industries like information technology, engineering, and other skilled trades. This adds additional economic costs for the unemployed who need to learn the necessary skills for growing industries as well as for companies who will need to use additional resources to train new employees. Long-term unemployed also suffer from institutional barriers due to their status. A study from the Boston Federal Reserve showed that candidates who recently lost a job were more likely to be called for interviews than those who had been out of work long-term, further contributing to the economic and psychological burdens of the long-term unemployed. This further increases the risk of a permanently unemployed class developing in the United States.
Simply put, the current rate of economic growth is insufficient in encouraging willing workers to enter the workforce. Implementing an agenda which focuses on reinvigorating anemic economic growth is extremely important in reducing long-term unemployment and ensuring stable long-term job growth.