Why Is Long-Term Unemployment Declining?
Friday, September 03, 2010 at 4:03 pm
One interesting detail in this morning’s jobs report: The number of workers out of a job for more than six months declined by about 600,000. Moreover, the long-term unemployed made a smaller percentage of the total pool of unemployed workers. The Wall Street Journal reports that this is perhaps a good sign:
There was a slice of good news in today’s jobs report about the state of long-term unemployment in America. The Labor Department reported that the share of workers who were out of a job for six months or longer fell for the third straight month ….
There are many reasons to worry about long-term unemployment. One is the human toll it takes on individuals and families. Another is a problem that economists call hysteresis, which has plagued Europe. This is the theory that the longer a person is out of work, the harder it becomes to get a new job because that person’s skills degrade. Barack Obama’s top economic adviser, Lawrence Summers, was a leading researcher in this area in the 1980s.
Long-term unemployment still has a long way to go before it gets back to normal. Moreover, it’s not clear why long-term unemployment ticked down.
But I am not sure that this is a good thing. The question — and it is impossible to tell from the data — is how many of these workers found new positions and how many simply stopped looking. I fear the number declined more due to the latter than the former.Why? For one, the impact of the lapse of unemployment insurance benefits. (Workers receiving UI need to be looking for a job. For the weeks that hundreds of thousands of workers had their benefits lapse, there was no such requirement. Could that, plus the financial hardship of losing benefits, have pushed workers out of the labor force?) Additionally, the number of workers who want a job but aren’t currently looking for one increased in August — not enough to explain the entire drop, but enough to explain part of it. Moreover, the labor market just hasn’t improved much, and the longer the spell of unemployment, the harder it is to get a job.
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