Problem? What problem?
by digby
Via Brad DeLong:
Middle Class Political Economist: Basics: Length of Unemployment is Historically Unprecedented: As everyone knows, long-term unemployment has been a big problem in the current crisis. But “knowing” isn’t the same as having perspective. For that, we need a comparison. It turns out that the average duration of unemployment over the last few months is almost exactly twice as high as the previous peak in 1983 in the aftermath of the Reagan recession. The current average of over 40 weeks is completely unprecedented historically…. Unemployment duration has increased steadily even since the end of the official recession, and may finally have topped out at 40.9 weeks in November 2011. Let’s hope we’re finally seeing a reduction.
In case you were wondering why this matters:
When people are out of work for a year or more, their skills often decline. Their professional networks shrink. Companies hesitate to hire them. The problem feeds on itself.
“It’s a serious threat,” said Mark Zandi, chief economist at Moody’s Analytics. “A growing proportion of the labor force is becoming disenfranchised.”
Those who have been out of work for many months describe troubling experiences.
Linda Evans, 59, a home health care worker in Washington, has struggled to find work since her last employer left the area three years ago. She applies for openings online and attends job fairs. But she’s found it difficult even to get interviews.
“I don’t know if it’s my age or what,” she said. “I never expected to be in this situation. And I’m scared.”
Long-term unemployment affects the economy in key ways:
— It lowers skill levels, making it harder to match the unemployed with available jobs. Harry Holzer, a Georgetown University economist, said that once hiring picks up, employers tend to complain that they can’t find people with the new skills they need. Companies are already having trouble filling advanced manufacturing jobs, Holzer said.
— More people rely on government benefits. Unemployment benefits were extended during the recession to a record 99 weeks in states with the highest unemployment rates. The number of people receiving food stamps topped 45 million in May. That’s another record. Older workers unable to find jobs often draw their Social Security benefits earlier. Many also have health problems and end up on government disability programs.
— The long-term unemployed who do find jobs again will probably do so at lower pay. A study by the Congressional Budget Office found that the long-term unemployed earn, on average, 20 percent less when they finally find work.
Still, it’s hard to predict the economic outcome because no one has seen such levels of long-term unemployment before, said Steven Davis, an economist at the University of Chicago.
“We’re in uncharted territory,” he said. “Those people are going to have inferior outcomes in earnings and employment well beyond the current weakness in the labor market.”
Sure, it may be devastating to the futures of millions of American workers, but it works like a charm to lower their expectations … and everyone’s wages.
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