The Self-Perpetuating Problem of Long-Term Unemployment

As the Hill debates its emergency benefits policy, millions struggle to find work.

WASHINGTON, DC - NOVEMBER 14: Nominee for the Federal Reserve Board Chairman Janet Yellen (C) leaves after her confirmation hearing November 14, 2013 on Capitol Hill in Washington, DC. Yellen will be the first woman to head the Federal Reserve if confirmed by the Senate and will succeed Ben Bernanke.
National Journal
Elahe Izadi Catherine Hollander
Elahe Izadi Catherine Hollander
Dec. 8, 2013, 7:20 a.m.

Ag­wu On­wuka has been out of work for well over six months. He ini­tially star­ted look­ing for jobs like his last one, coun­sel­ing people with dis­ab­il­it­ies. But as the months dragged on, he star­ted sub­mit­ting ap­plic­a­tions for re­tail jobs, cold-call­ing at of­fice build­ings, and vis­it­ing loc­al non­profit LIFT-DC for résumé help.

“It’s so frus­trat­ing, be­cause I used to get up in the morn­ing to go to work, and now I just wish I would be able to get something,” said On­wuka, 51, who lives in D.C. To keep his spir­its up, he says “I just pray, I just pray and try to re­mem­ber that.”

Long-term un­em­ploy­ment has been a de­fin­ing char­ac­ter­ist­ic of the fin­an­cial crisis and its af­ter­math. And while Con­gress is once again de­bat­ing wheth­er to ex­tend fed­er­al emer­gency un­em­ploy­ment be­ne­fits, the long­time out-of-work re­main stuck in a very dif­fi­cult, self-per­petu­at­ing situ­ation: The longer a per­son has been un­em­ployed, the more dif­fi­cult it is to get hired.

Un­em­ploy­ment fell to 7 per­cent in Novem­ber as the eco­nomy ad­ded 203,000 jobs, the Bur­eau of Labor Stat­ist­ics said Fri­day. But roughly 4.1 mil­lion Amer­ic­ans were out of work for 27 weeks or more — a num­ber ba­sic­ally un­changed from the pre­vi­ous month. One in three un­em­ployed Amer­ic­ans fall in­to the long-term cat­egory.

Even though that num­ber has been slowly inch­ing down as the eco­nomy re­cov­ers, the share of the work­force that is un­em­ployed for long peri­ods of time re­mains above any­thing the coun­try has ever seen.

The stigma

Try ap­ply­ing for a job with a stale résumé, and you’re go­ing to have a very tough go of it.

That’s what Rand Ghay­ad, an MIT re­search­er and doc­tor­al can­did­ate at North­east­ern Uni­versity, set out to test. He sent out 4,800 fake résumés that var­ied in their in­dustry ex­per­i­ence and how long the “ap­plic­ants” had been un­em­ployed. He found that ap­plic­ants who had been un­em­ployed for more than six months hardly ever got a call back. The Fed­er­al Re­serve Bank of Bo­ston pub­lished his res­ults.

Even be­ing more skilled doesn’t ne­ces­sar­ily help you, Ghay­ad found. Say he had worked for a bank be­fore a six-month or longer stint without a job. “Even if I ap­ply for the same po­s­i­tion, you are go­ing to prefer someone who is short-term un­em­ployed with no ex­per­i­ence,” he said.

That sug­gests that even ad­di­tion­al skills train­ing won’t ne­ces­sar­ily be the key for the long-term un­em­ployed climb­ing out of their pre­dic­a­ment.

“There’s noth­ing they can do to im­prove their chances. There’s noth­ing they can do to over­come this stigma,” Ghay­ad said.

The over­all pic­ture

The long-term un­em­ployed have more com­pany than ever be­fore. Be­fore the fin­an­cial crisis, the highest share of the labor force it had ever been was 2.6 per­cent in 1983. While the United States broke that re­cord dur­ing the down­turn as it climbed to 4 per­cent, it has since stead­ily fallen. Now, four and a half years after the re­ces­sion ended, it’s 2.6 per­cent again. There’s still a long way to go.

Re­search­ers say the pre­cise im­pact of be­ing un­em­ployed for long peri­ods of time is hard to tease out, since the coun­try is in un­charted ter­rit­ory. But eco­nom­ists warn that its ef­fects can be det­ri­ment­al, per­son­ally and na­tion­ally.

“Longer spells of un­em­ploy­ment raise the risk of home­less­ness and have been a factor con­trib­ut­ing to the fore­clos­ure crisis,” Janet Yel­len, who is likely to be con­firmed as the next Fed chair­wo­man this month, said earli­er this year. “When you’re un­em­ployed for six months or a year, it is hard to qual­i­fy for a lease, so even the op­tion of re­lo­cat­ing to find a job is of­ten off the table. The toll is simply ter­rible on the men­tal and phys­ic­al health of work­ers, on their mar­riages, and on their chil­dren.”

Solu­tions

Right now, law­makers are con­sid­er­ing wheth­er to ex­tend fed­er­al emer­gency un­em­ploy­ment in­sur­ance, be­ne­fits that kick in after in­di­vidu­als ex­haust state aid, which typ­ic­ally runs six months. On Dec. 28, 1.3 mil­lion people will be kicked off the pro­gram.

Demo­crats have made it a pri­or­ity to pass an ex­ten­sion, ar­guing that out-of-work Amer­ic­ans need the se­cur­ity while they look for jobs, par­tic­u­larly giv­en that long-term un­em­ploy­ment re­mains a per­sist­ent prob­lem. Re­pub­lic­ans want to see the pro­gram ex­pire, ar­guing it costs money, is un­ne­ces­sary with drop­ping em­ploy­ment num­bers, and doesn’t ac­tu­ally solve the jobs prob­lem.

Con­gress first ap­proved the pro­gram in 2008 in the midst of the Great Re­ces­sion and have man­aged to re­new it every year since. It’s un­clear what its fu­ture will be on Cap­it­ol Hill.

But aside from the be­ne­fit, eco­nom­ists are di­vided on how to solve the prob­lem of long-term un­em­ploy­ment and wheth­er the be­ne­fits of un­em­ploy­ment in­sur­ance — to com­pens­a­tion, well-be­ing, and more — out­weigh the fisc­al costs, and the slight in­crease in job­less­ness that some eco­nom­ists say ex­tend­ing un­em­ploy­ment in­sur­ance may cause.

“There’s no policy lever to really say, ‘All of you long-term un­em­ployed people whose in­dus­tries have shut down, we’re go­ing to find you a new job that’s just as good as the job you lost,’ ” said Aus­tin Nich­ols, a seni­or re­search as­so­ci­ate at the Urb­an In­sti­tute. He sees gov­ern­ment-sub­sid­ized jobs as one good rem­edy. Short-term com­pens­a­tion is an­oth­er way to tackle the prob­lem; it would provide par­tial un­em­ploy­ment-in­sur­ance be­ne­fits to work­ers on par­tial work sched­ules.

Oth­ers have re­com­men­ded laws ban­ning dis­crim­in­a­tion against the long-term un­em­ployed; a hand­ful of states and loc­al­it­ies have done so, but it’s un­clear how ef­fect­ive they are.

Broadly, the Fed­er­al Re­serve has pledged to use its mon­et­ary-policy tools to fight un­em­ploy­ment and meet its con­gres­sion­al man­date of en­sur­ing “max­im­um em­ploy­ment.” Yel­len, the likely in­com­ing Fed chief, said earli­er this year, “These are not just stat­ist­ics to me” and pledged to work to re­duce long-term un­em­ploy­ment.

Still, find­ing policy solu­tions is es­pe­cially dif­fi­cult now giv­en the lack of ex­per­i­ence in this area, said Douglas Holtz-Eakin, Con­gres­sion­al Budget Of­fice dir­ect­or un­der George W. Bush.

“We haven’t, as a pro­fes­sion, provided much of a solu­tion. This has been both­er­ing me for quite awhile, ac­tu­ally,” Holtz-Eakin said. “We need to grow more rap­idly. All of these prob­lems get so much easi­er in an en­vir­on­ment with rap­id growth, that’s why it’s so im­port­ant.”

That’s also what Ghay­ad sug­ges­ted. If the eco­nomy is grow­ing, even if the short-term un­em­ployed are hired more quickly, the long-term un­em­ployed will still be able to pick up jobs as the hir­ing queue churns for­ward.

Fri­day’s re­port sug­ges­ted the labor mar­ket con­tin­ues to strengthen. But it also re­vealed just how far from full strength it re­mains. As law­makers and policy ex­perts ex­plore long-term un­em­ploy­ment solu­tions in Wash­ing­ton, so will un­em­ployed people like On­wuka con­tin­ue sub­mit­ting résumés, hop­ing for a call back.

{{ BIZOBJ (video: 4611) }}

The stigma

Try ap­ply­ing for a job with a stale résumé, and you’re go­ing to have a very tough go of it.

That’s what Rand Ghay­ad, an MIT re­search­er and doc­tor­al can­did­ate at North­east­ern Uni­versity, set out to test. He sent out 4,800 fake résumés that var­ied in their in­dustry ex­per­i­ence and how long the “ap­plic­ants” had been un­em­ployed. He found that ap­plic­ants who had been un­em­ployed for more than six months hardly ever got a call back. The Fed­er­al Re­serve Bank of Bo­ston pub­lished his res­ults.

Even be­ing more skilled doesn’t ne­ces­sar­ily help you, Ghay­ad found. Say he had worked for a bank be­fore a six-month or longer stint without a job. “Even if I ap­ply for the same po­s­i­tion, you are go­ing to prefer someone who is short-term un­em­ployed with no ex­per­i­ence,” he said.

That sug­gests that even ad­di­tion­al skills train­ing won’t ne­ces­sar­ily be the key for the long-term un­em­ployed climb­ing out of their pre­dic­a­ment.

“There’s noth­ing they can do to im­prove their chances. There’s noth­ing they can do to over­come this stigma,” Ghay­ad said.

The overall picture

The long-term un­em­ployed have more com­pany than ever be­fore. Be­fore the fin­an­cial crisis, the highest share of the labor force it had ever been was 2.6 per­cent in 1983. While the United States broke that re­cord dur­ing the down­turn as it climbed to 4 per­cent, it has since stead­ily fallen. Now, four and a half years after the re­ces­sion ended, it’s 2.6 per­cent again. There’s still a long way to go.

Re­search­ers say the pre­cise im­pact of be­ing un­em­ployed for long peri­ods of time is hard to tease out, since the coun­try is in un­charted ter­rit­ory. But eco­nom­ists warn that its ef­fects can be det­ri­ment­al, per­son­ally and na­tion­ally.

“Longer spells of un­em­ploy­ment raise the risk of home­less­ness and have been a factor con­trib­ut­ing to the fore­clos­ure crisis,” Janet Yel­len, who is likely to be con­firmed as the next Fed chair­wo­man this month, said earli­er this year. “When you’re un­em­ployed for six months or a year, it is hard to qual­i­fy for a lease, so even the op­tion of re­lo­cat­ing to find a job is of­ten off the table. The toll is simply ter­rible on the men­tal and phys­ic­al health of work­ers, on their mar­riages, and on their chil­dren.”

Solutions

Right now, law­makers are con­sid­er­ing wheth­er to ex­tend fed­er­al emer­gency un­em­ploy­ment in­sur­ance, be­ne­fits that kick in after in­di­vidu­als ex­haust state aid, which typ­ic­ally runs six months. On Dec. 28, 1.3 mil­lion people will be kicked off the pro­gram.

Demo­crats have made it a pri­or­ity to pass an ex­ten­sion, ar­guing that out-of-work Amer­ic­ans need the se­cur­ity while they look for jobs, par­tic­u­larly giv­en that long-term un­em­ploy­ment re­mains a per­sist­ent prob­lem. Re­pub­lic­ans want to see the pro­gram ex­pire, ar­guing it costs money, is un­ne­ces­sary with drop­ping em­ploy­ment num­bers, and doesn’t ac­tu­ally solve the jobs prob­lem.

Con­gress first ap­proved the pro­gram in 2008 in the midst of the Great Re­ces­sion and have man­aged to re­new it every year since. It’s un­clear what its fu­ture will be on Cap­it­ol Hill.

But aside from the be­ne­fit, eco­nom­ists are di­vided on how to solve the prob­lem of long-term un­em­ploy­ment and wheth­er the be­ne­fits of un­em­ploy­ment in­sur­ance — to com­pens­a­tion, well-be­ing, and more — out­weigh the fisc­al costs, and the slight in­crease in job­less­ness that some eco­nom­ists say ex­tend­ing un­em­ploy­ment in­sur­ance may cause.

“There’s no policy lever to really say, ‘All of you long-term un­em­ployed people whose in­dus­tries have shut down, we’re go­ing to find you a new job that’s just as good as the job you lost,’ ” said Aus­tin Nich­ols, a seni­or re­search as­so­ci­ate at the Urb­an In­sti­tute. He sees gov­ern­ment-sub­sid­ized jobs as one good rem­edy. Short-term com­pens­a­tion is an­oth­er way to tackle the prob­lem; it would provide par­tial un­em­ploy­ment-in­sur­ance be­ne­fits to work­ers on par­tial work sched­ules.

Oth­ers have re­com­men­ded laws ban­ning dis­crim­in­a­tion against the long-term un­em­ployed; a hand­ful of states and loc­al­it­ies have done so, but it’s un­clear how ef­fect­ive they are.

Broadly, the Fed­er­al Re­serve has pledged to use its mon­et­ary-policy tools to fight un­em­ploy­ment and meet its con­gres­sion­al man­date of en­sur­ing “max­im­um em­ploy­ment.” Yel­len, the likely in­com­ing Fed chief, said earli­er this year, “These are not just stat­ist­ics to me” and pledged to work to re­duce long-term un­em­ploy­ment.

Still, find­ing policy solu­tions is es­pe­cially dif­fi­cult now giv­en the lack of ex­per­i­ence in this area, said Douglas Holtz-Eakin, Con­gres­sion­al Budget Of­fice dir­ect­or un­der George W. Bush.

“We haven’t, as a pro­fes­sion, provided much of a solu­tion. This has been both­er­ing me for quite awhile, ac­tu­ally,” Holtz-Eakin said. “We need to grow more rap­idly. All of these prob­lems get so much easi­er in an en­vir­on­ment with rap­id growth, that’s why it’s so im­port­ant.”

That’s also what Ghay­ad sug­ges­ted. If the eco­nomy is grow­ing, even if the short-term un­em­ployed are hired more quickly, the long-term un­em­ployed will still be able to pick up jobs as the hir­ing queue churns for­ward.

Fri­day’s re­port sug­ges­ted the labor mar­ket con­tin­ues to strengthen. But it also re­vealed just how far from full strength it re­mains. As law­makers and policy ex­perts ex­plore long-term un­em­ploy­ment solu­tions in Wash­ing­ton, so will un­em­ployed people like On­wuka con­tin­ue sub­mit­ting résumés, hop­ing for a call back.

{{ BIZOBJ (video: 4611) }}

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