Deadly Long Term Unemployment

We have a new unemployment rate of 8.6% that looks much improved on the surface.  Notice I had to qualify that statement.  This is because of the flows in and out of labor markets and the patterns of jobs.  Ever since they changed the measures of “employed” to mean any one working at least one hour of work, the rate is less meaningful than the underlying patterns.  There are several underlying numbers that make this unemployment report a mixed bag.

On the good side, there was some job creation and there appears to be a larger number of people working more hours.  This means that underemployment is improving.   I should mention that unemployment can actually get worse for awhile after a recession–making it a lagging indicator–because improving job markets encourage unhappy job holders to start looking for a different situation.  What we are seeing is that people are able to pick up more hours.  That’s not part of the job switch behavior.  It means the situation for current job holders is improving.

The bad news is for the long term unemployed whose unemployment levels stayed the same.  There are also indications of an outflow of “discouraged” workers who have simply given up looking for work and are likely off the unemployment roles now.  This is very troubling and requires immediate policy response.

In November, the number of job losers and persons who completed temporary jobs declined by 432,000 to 7.6 million. The number of long-term unemployed (those
jobless for 27 weeks and over) was little changed at 5.7 million and accounted for 43.0 percent of the unemployed. (See tables A-11 and A-12.)

The civilian labor force participation rate declined by 0.2 percentage point to 64.0 percent. The employment-population ratio, at 58.5 percent, changed little.
(See table A-1.)

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) dropped by 378,000 over the month to 8.5 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-8.)

There are two ways the government could deal with this long term unemployment.  The first would be most direct.  That would be hiring them directly.  Given the current political situation, that is unlikely to happen.  The second way would be to pay for the first year or two of their salaries and benefits.  This would probably be more acceptable to republicans–however I do question their commitment to improving the economy and the job situation in general–but it would take some work to get the apparatus in place.  President Obama has made policy suggestions that would pay states to keep education, public health, and public safety employees but that has met with demands for cuts elsewhere to pay for reimbursements.   This is a good suggestion, but doesn’t do anything to deal with the number of long term unemployed who are know disenfranchised from the work environment, are losing skills, and are less likely to be hired due to discrimination by employers who don’t like large, “unexplained job gaps.  A program needs to be directly targeted to this group.
Why am I suggesting this?  It is because the number of labor market economists that are crunching numbers at the moment show us that it’s taking forever at this rate to bring down unemployment and we are likely creating a permanent underclass. Felix Salmon has a graph and some analysis this demonstrates the problem.

When employed people become unemployed, that’s bad news, and immediately visible in the unemployment rate. When unemployed people leave the labor force entirely, that’s equally bad news, but it’s a tougher measure for the public to connect with, since at that point they’re no longer counted in the unemployment rate. Everybody knows what “unemployment” is; the population which cares about the “employment-to-population ratio”, by contrast, is wholly comprised of wonks.

The plunge in the employment-to-population ratio over the course of the Great Recession is going to be its biggest and most lasting legacy. We’re now back to the levels last seen in the days before most women worked, but we live in a very different world now. In the late 1970s, a woman without a job was much less likely to consider herself unemployed than in the early 2010s. And when she casts her vote in November, the degree to which she’s happy or unhappy with the current administration is going to be much more connected to her actual employment status than it is to whether she’s officially showing up in the unemployment rolls.

Over the next few months, we’ll get a better sense of the signal-to-noise ratio in the 8.6% number. I’m hopeful that we’ve seen the last 9 handle in the headline unemployment data series, and if I’m right, then the optics of the unemployment rate are, at the margin, good for Ds and bad for Rs. But the unemployment rate is not a particularly good gauge of how well the economy is functioning, or how many people have jobs. And I’m very pessimistic that the employment-to-population ratio is going to get back above 60% even over the medium term. It’s certainly not going to get there before the election.

Here’s some more composite analysis from NBC interviews with economists.

Long-term unemployment remains a big problem: The average duration for joblessness surged to a record-high 40.9 weeks. Stagnation in wages also continues, as more employed workers took on second jobs. There were just under seven million multiple job-holders for the month, the highest total in 2011 and the most since May 2010.

Traders offered little reaction to the report. Futures already had been indicating a positive open but lost some ground in the ensuing minutes after the Labor Department report hit the tape.

“At this pace of job growth, it will be more than two decades before we get back down to the pre-recession unemployment rate. Moreover, a shrinking labor force is not the way we want to see unemployment drop,” said Heidi Shierholz, economist at the Economic Policy Institute. “At this rate of growth we are looking at a long, long schlep before our sick labor market recovers.”

Here’s a bleak assessment from Dean Baker via Taylor Marsh.

It takes roughly 90,000 jobs to keep even with the growth of the labor force. At this rate, it will take close to 200 months, or 16 2/3 years to make up for the 10 million job deficit in the economy.

Even the White House is admitting that we’re a long way from the pre-recession employment numbers.  Here’s the nifty graph that Calculated Risk has been updating over time that clearly demonstrates the literal uphill battle. Since republicans are in no mood to improve the economy and the jobless rate given their strong desire to regain the White House and the Senate, I don’t see much hope for any solution any time soon. If they do regain any of the above after the election we probably won’t see any improvement at all.  That’s why I think the Obama administration needs to work on continued targeted fixes.  Again, I would recommend  directly paying businesses to hire the long term unemployed.  I actually think it would be worth offering some spending offsets if that is going to be what it takes because we can’t afford to continue to endure these levels of duration. The more chronic the problem becomes, the more it will cost us and the more it will ruin millions of folks’ lives.