Policy: Economy

Slow hiring is blurring the line between long-term unemployed and not working

By |
Jobs,PennAve,Joseph Lawler,Economy,Unemployment

Labor market “churn” is picking up, but it remains low.

Friday's Bureau of Labor Statistics Job Openings and Labor Turnover survey showed that there were 4.6 million hires in September, to go along with 4.4 million job separations.

Overall job churn is still far from its prerecession rates. It was typical for hires and separations to check in over 5 million in the years 2006-2008:



the persistence of weak churn is a puzzle when it's considered with another important feature of the U.S. labor market, namely that short-term unemployment has fallen to relatively low levels.

That’s right: Although the overall unemployment rate, at 7.3 percent in October, remains high, the rate of workers unemployed for 26 weeks or less is just 4.6 percent.

In fact, short-term unemployment has fallen close to where it was a decade ago, if not the trough it reached before the recession:



By contrast, long-term unemployment is nowhere close to a full recovery, with just over 4 million having looked for work for 27 weeks or longer:


Currently, the long-term unemployed make up about 36 percent of the total number of unemployed Americans. That number is out of line with what would be projected based on past recessions, according to the Urban Institute's Gregory Acs. By Acs' analysis, unemployment of duration greater than 26 weeks should have topped out at 25-30 percent in the depths of the recession. Instead, it peaked at 40 percent.

These facts together yield an odd picture of the U.S. jobs outlook: a still-disastrous set of circumstances for the long-term unemployed, coupled with relatively tight short-term labor markets and still-weak churn.

One key to understanding the apparent divergence in the fates of the long-term unemployed and the rest of the labor market is the fact that so many Americans have dropped out of the labor force altogether during the recession.

These are people who are not even looking for work. That means they are not counted by the BLS's researchers as unemployed in calculating the unemployment rate.

Since the official beginning of the recession in December 2007, the labor force participation rate has fallen from 66 to 63 percent.

Some of that decline is due to America’s population aging and other trends unrelated to the recession.

But a large part of it is also workers losing hope of finding a job, or postponing the job search until conditions improve.

The Federal Reserve Bank of Boston has estimated that workers who have given up on work account for roughly half of the total jobs shortfall.

How big is that jobs shortfall? By estimates from the Congressional Budget Office, America is short about 8 million jobs of its potential.

That means roughly 4 million Americans are on the sidelines waiting for the economy to pick up before resuming their job searches.

The dividing line between this group and the long-term unemployed might be getting blurred.

In a paper published by the Brookings Institution in late 2011, a group of Federal Reserve regional bank economists explained that in early 2010, there was an uptick in the number of respondents to BLS surveys who were newly counted as unemployed, but who reported being unemployed for longer than five weeks -- something that shouldn't happen, given that the BLS polls once a month. The study's authors suggest that these respondents “are individuals who stopped looking for work for some months and then started looking again in the survey month.”

In other words, the disproportionately large number of long-term unemployed includes many Americans transitioning from being out of the job hunt to starting to look for work again.

So sky-high long-term unemployment is, in part, a reflection of labor force participation returning to health.

The authors of the Brookings analysis found that the best way to mitigate the long-term unemployment problem is to “improve the likelihood that individuals find a job before they become long-term unemployed.” Accordingly, once hiring for the short-term unemployed picks up — that is, labor market churn increases — the long-term unemployment rate will come down “substantially,” the authors write, even if hiring rates for the long-term unemployed don't increase in the near future.

View article comments Leave a comment