BUSINESS

Long-term unemployment threatens U.S. economic prosperity

Staff Writer
Columbus CEO

(c) 2013, The Washington Post.

On Saturday, an emergency unemployment insurance program will expire, immediately cutting off jobless benefits for 1.3 million workers who have been unemployed for longer than 26 weeks.

Republicans had wanted the benefit to end, arguing that it discourages people from actively looking for work. An extension is supported by Democrats and President Barack Obama, who on Friday reiterated his support for extending the benefits for another three months in a call with lawmakers.

Here are seven reasons why the issue of long-term unemployment in the United States still very much matters:

1. Long-term unemployment is at its highest level since World War II. Including those who are receiving the federal benefit, there are about 4 million people who have been out of work for 27 weeks or longer. Their ranks include all types of Americans — young, old, married with kids, college-educated and high-school dropouts, according to a survey by the Urban Institute.

2. Most of the long-term unemployed are having an extremely difficult time finding jobs. It's actually much harder for these workers than those who have been out of work for a few weeks. If you've been out of work for 27 weeks or longer, you currently have just a 12 percent chance of finding a new job in a given month. In fact, those odds are even worse today than they were in 2007, according to research by the Federal Reserve.

Why is this? It's possible that the long-term unemployed are simply less employable. But there's also evidence that businesses actively discriminate against these workers. As Michael Strain of the American Enterprise Institute points out, employers assume there must be something wrong with the long-term unemployed. That may well be irrational. But there's little doubt that it's a huge obstacle for these workers.

3. Long-term unemployment takes an extreme toll on people's health and well-being. It's hard to overstate how much damage long-term unemployment can do to a human being.

Workers who have been out of a job for longer than 27 weeks typically see their incomes fall by 40 percent, according to the Urban Institute. They also tend to have worse health, higher rates of suicide and strained relationships with their families. They see a massive drop in self-esteem. Their children do worse in school and earn less over the long run.

4. The expiration of emergency benefits will take away a key source of income for millions of people.At the moment, many states still offer up to 63 or even 73 weeks of unemployment aid, and benefits average about $300 a week. That will all change Saturday. At that point, most states will go back to offering 26 weeks of jobless benefits at most, as they did before the recession.

That creates a problem: Right now, as a result of the downturn, finding a new job on average takes about 35 weeks. So that means many jobless workers will see their benefits cut off before they find work again.

5. There's scant evidence that the long-term unemployed will find it easier to get jobs if their benefits are cut off. For starters, there still aren't enough jobs to go around: There are about 2.9 unemployed workers for every job opening.

Recently, JPMorgan's chief U.S. economist, Michael Feroli, surveyed the evidence and found that the long-term unemployed don't typically find jobs en masse when their benefits expire. Many seem to give up looking and drop out of the labor force entirely. Indeed, there are some signs that this is happening in North Carolina, which recently slashed its state unemployment program.

6. Congress is doing very little else to help the long-term unemployed find work. But it's also worth noting that simply extending jobless benefits once again won't solve the problem of long-term unemployment either.

Economists on both the left and the right who have looked at this problem tend to think the government needs to do a lot more to tackle long-term unemployment. That could include work-sharing programs. Or tax incentives for companies that hire the long-term jobless, as economist Dean Baker has suggested. Or relocation assistance. Or even, as the American Enterprise Institute's Kevin Hassett has proposed, the government could hire people directly. But Congress isn't even talking about any of these things.

7. All this long-term unemployment is destroying the U.S. economy. Earlier this year, three economists at the Federal Reserve published an unsettling paper arguing that the long-term productive capacity of the U.S. economy has been greatly diminished. The reason? Long-term unemployment.

Their argument goes like this: There are now millions of Americans who lost their jobs in the recession, often through no fault of their own, and they've now been out of work for years. Those workers have seen their skills atrophy, their networks fade, and many of them have dropped out of the workforce entirely, discouraged by their inability to find work. That, in turn, has weakened the total potential of the U.S. economy.

This is an extremely worrisome situation. It means that long-term unemployment isn't just a temporary ailment that will heal itself as the economy keeps rebounding. It has left permanent scars. The U.S. economy will never be as productive as it could have been had we figured out how to get people back to work more quickly.

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