Study: Long-Term Unemployed, If They Get a Job, More Likely to Leave Than Settle Into Labor Force

A new paper details the challenges facing this “unlucky subset of the unemployed.”

Matthew Giarmo of Alexandria, Virginia, who lost his contract job with the Department of Health and Human Services in 2012, holds up a sign seeking a job with a lower salary than he would normally ask on a street corner October 8, 2013 in Washington, DC.
National Journal
March 20, 2014, 9:23 a.m.

The situ­ation for the long-term un­em­ployed just keeps sound­ing worse. They’re less likely to be called in for a job in­ter­view than someone who has been out of work for a short­er peri­od of time, re­search­ers found last year. And new re­search says that even if they get a job, their long un­em­ploy­ment spell is likely to con­tin­ue hanging over them.

“It ap­pears that ree­m­ploy­ment does not fully re­set the clock for the long-term un­em­ployed,” ar­gues a new pa­per by Alan Krueger, the former head of the White House Coun­cil of Eco­nom­ic Ad­visers, and fel­low Prin­ceton Uni­versity eco­nom­ists Judd Cramer and Dav­id Cho.

The long-term un­em­ployed have a one-in-10 chance of re­turn­ing to the labor force in any giv­en month. But 15 months later, they’re more than twice as likely to have left than to have settled in­to steady, full-time em­ploy­ment, ac­cord­ing to the pa­per, which was re­leased Thursday as part of a Brook­ings In­sti­tu­tion con­fer­ence on the eco­nomy.

Cur­rently, 3.8 mil­lion Amer­ic­ans have been out of work for 27 weeks or more, which is the Labor De­part­ment’s defin­i­tion of long-term un­em­ploy­ment. Afric­an-Amer­ic­ans, who make up 10 per­cent of em­ployed Amer­ic­ans, make up 22 per­cent of the long-term un­em­ployed. Com­pared with their short-term uem­ployed coun­ter­parts, a high­er pro­por­tion of the long-term un­em­ployed are over 50 and have nev­er mar­ried. A ma­jor­ity come from blue-col­lar and sales and ser­vice jobs.

In­di­vidu­als with long and short spells of un­em­ploy­ment tend to re­turn to the in­dus­tries from which they were dis­placed, the pa­per’s au­thors say. “These res­ults sug­gest that as­sist­ing un­em­ployed work­ers to trans­ition to ex­pand­ing sec­tors of the eco­nomy, such as health care, pro­fes­sion­al and busi­ness ser­vices, and man­age­ment, is a ma­jor chal­lenge,” Krueger, Cramer, and Cho write.

They also ar­gue that the long-term un­em­ployed don’t ap­pear to ex­ert much pres­sure on the coun­try’s in­fla­tion or wage growth. Re­search­ers at the New York Fed­er­al Re­serve Bank drew a sim­il­ar con­clu­sion in a Feb­ru­ary study on wage growth, al­though Fed Chair Janet Yel­len said Wed­nes­day that she thought the ques­tion was still up for de­bate.

“With re­spect to the is­sue of short-term un­em­ploy­ment, and it’s be­ing more rel­ev­ant for in­fla­tion and a bet­ter meas­ure of the labor mar­ket, I’ve seen re­search along those lines,” Yel­len told re­port­ers at a press con­fer­ence Wed­nes­day. “I think it would be tre­mend­ously pre­ma­ture to ad­opt any no­tion that says that that is an ac­cur­ate read on either how in­fla­tion is de­term­ined or what con­sti­tutes slack in the labor mar­ket.”

Gauging the amount of labor-mar­ket slack cor­rectly is im­port­ant for the Fed, be­cause mis­judging could lead to policy choices that res­ult in high­er or lower in­fla­tion, or a slower labor-mar­ket re­cov­ery, than the cent­ral bank de­sires.

Krueger, Cramer, and Cho show that the long-term un­em­ployed don’t seem to fare bet­ter in states with lower over­all un­em­ploy­ment rates — evid­ence, they say, that the long-term un­em­ployed tend to be on the labor mar­ket’s fringes even in places where the eco­nomy is healthy.

They ex­ist on the mar­gins for two reas­ons: The long-term un­em­ployed be­come dis­cour­aged about their pro­spects and stop look­ing for work; and em­ploy­ers dis­crim­in­ate against them. These is­sues could be seen as “com­ple­ment­ary and re­in­for­cing,” the au­thors say, be­cause dis­crim­in­a­tion could lead to more dis­cour­age­ment for the work­ers.

“To a con­sid­er­able ex­tent, they are an un­lucky sub­set of the un­em­ployed,” the pa­per con­cludes.

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