We’re Failing The Long-Term Unemployed

by Patrick Appel

Suzy Khimm summarizes key parts of a new Brookings paper:

Three Princeton University economists found that only 11% of Americans who are long-term unemployed find steady, full-time work a year later, according to data from 2008 to 2012. What’s more, only 39% have found work at all during that year—even for a brief period of time, “highlighting that the long-term unemployed frequently are displaced soon after they gain reemployment,” the authors Alan Krueger, a former Obama economic adviser, Judd Cramer, and David Cho wrote in their paper.

What has happened to everyone else? Of those unemployed for six months or longer, about 30% are still looking for work and failing to find it a year later. But even more people have simply stopped looking for work altogether: 34% are no longer in the labor force, according to the paper presented at the Brookings Institute Thursday.

Danny Vinik wishes Congress would get serious about this problem:

This is the most frightening consequence of the Great Recession: working-age, able-bodied Americans who have given up. Instead of contributing to the economy, they will collect benefits from the government, such as Social Security Disability Insurance, for decades to come.

Congress can prevent this. On the supply side, unemployment benefits keep the long-term unemployed in the labor force by requiring them to continue searching for work if they want to collect unemployment. House Speaker John Boehner is blocking an extension of unemployment insurance for no legitimate reason. On the demand side, Congress could offer employers financial incentives—like a tax credit—for hiring the long-term unemployed. Even better, the government could set up a jobs program that targets the long-term unemployed. Neither side seems particularly eager for that.

Tyler Cowen considers the paper “evidence for a notion of zero marginal product workers”:

Furthermore, in my view (I am not speaking for the authors here), right now further inflation is as likely to harm as to help these individuals. To ask whether the Fed “should give up” on the long-term unemployed is a biased framing which is more likely to mislead us than anything else.

Ylan Q. Mui highlights another finding from the paper:

There is no sign that long-term unemployed will make a big career switch. Despite lots of discussion about retraining workers for jobs in fast-growing industries such as health care, they tend to find employment in the fields they know best.

Binyamin Appelbaum also notes the “striking evidence that few people are finding jobs in new industries”:

Professor Krueger and his colleagues draw the conclusion that government may be able to help. The authors write, “These results suggest that assisting unemployed workers to transition to expanding sectors of the economy, such as health care, professional and business services, and management, is a major challenge.” But if long-term unemployment is more common in industries recovering more slowly, because would-be workers are trapped in those industries, this too suggests that the problem may be economic rather than personal.

There is a way to resolve the question. Fiscal and monetary policy makers could try to help, and we could all see what happens.

Instead, the debate seems increasingly likely to remain purely academic, and the long-term unemployed permanently lost.