The jobs report released today shows continued improvement in the labor market for most Americans, adding 209,000 jobs in July. The unemployment rate remained unchanged at 4.3 percent, still the lowest since March 2001.
Meanwhile, wage growth holds steady at 2.5 percent year over year. Job gains were seen in food services and drinking places, professional and business services, and health services industries. Manufacturing saw 16,000 new jobs added, up 66,000 jobs over the year. With inflation modest and showing no evidence of accelerating, the Fed’s unanimous decision to hold off on a rate hike in their July meeting was the right one. There is little sense in pumping the brakes on an economy where no significant inflationary signs are in sight, and while interest rates, productivity growth, and investment are low. What’s more, wage growth is still below 3–4 percent—which is considered the rate at which workers can see increasing incomes in real terms.
Long-Term Unemployment Is Still Too High
On the face of it, the unemployment rate measure has vastly improved, so much so that some are some are saying that the nation is approaching full employment. That’s clearly not the case as just 78.7 percent of prime age workers (24–54) are employed, compared to 80.3 percent and 81.9 percent at the peak of the last two recoveries in January 2007 and April 2001, respectively.
But the hidden story is the unprecedented levels of long-term unemployment. The average unemployed person is out of work for 24.9 weeks, compared to an average duration of 12.8 weeks the last time the unemployment rate was at 4.3 percent, in March 2001. The duration of unemployment makes all the difference. During short spells of unemployment, workers are able to rely on their savings and unemployment, while during long spells serious deprivation sets in.
So even with an unemployment rate below 5 percent, bouts of unemployment are longer, a sign that many are struggling to find work—over 1.78 million people have been out of work for six months or more. And many more discouraged workers who have stopped looking for work after six months add to the officially counted long-term unemployed.
According to Figure 1, long-term unemployment has remained stubbornly high despite the recovery. While significantly declining since its apex of 45.5 percent in April 2010, the long-term unemployed as a share of total unemployed is greater now than it has been in previous business cycles. Eight years after the recovery, 25.9 percent of all unemployed have been out of work for twenty-seven weeks or more, greater than all comparable points in recoveries since the late 1970s, and only scarcely better than the depths of some recessions, like that of the early 1980s (as demonstrated by the green line in Figure 1).
The trends indicate that this both a continued hangover from the Great Recession and a demonstration of how hard it continues to be to find work today. As shown by Figure 1, 15.3 percent of workers have been out of work for more than a year, and 6.5 percent of that 15.3 percent have been out of work more than ninety-nine weeks.
In other words, the longest period of jobs recovery on record that the United States is in now still has not wiped out the legacy of the Great Recession. For these very long-term unemployed workers, even an increasingly tight labor market is not the providing openings with skill requirements (and wages) to end extremely harsh spells of joblessness. For their part, employers are not yet being pushed to overcome the underlying bias against hiring workers who have been out of work for long stretches.
The longest period of jobs recovery on record that the United States is in now still has not wiped out the legacy of the Great Recession.
But what of those who have been laid off more recently, within the last year? They are still taking a long time to get back to work, but at similar levels to 2007. About 8 percent of the unemployed have been out of work between six months and a year, the same as in 2007. But’s that still nearly twice as many more (5 percent) than had been unemployed for long periods of time in 2000.
The Consequences and Causes of Prolonged Joblessness
Involuntary unemployment in itself is a problem, but the consequences of long-term unemployment can be tragic. Lost earnings, skills and benefits are damaging in tandem with increased risks of poverty, but it is also clear that being out of work for months on end can be demoralizing and detrimental to people’s health. Certain communities also endure longer bouts of unemployment and higher unemployment rates by being historically excluded from higher paying, higher-quality jobs. For example, the mean duration of unemployment for black or African-American workers is consistently higher than their white counterparts And the black unemployment rate stands at 7.4 percent this month—far greater than the 3.8 percent for whites—a level that would be considered recessionary if applied to the overall population.
The black unemployment rate stands at 7.4 percent this month—far greater than the 3.8 percent for whites—a level that would be considered recessionary if applied to the overall population.
The causes of this long-term unemployment vary and are still debated by economists and policymakers. Some argue that long-term unemployment persists because of slow growth and budget cuts that made the recovery weaker.
Others claim that unemployment insurance (UI) is too generous—especially when the number of benefit weeks was extended to ninety-nine weeks during the recession—and incentivizes workers to stay on UI for longer periods of time. But the evidence of this is wanting. A Federal Reserve Bank of San Francisco study showed that the ninety-nine week extension modestly increased unemployment by 0.4 percentage points.
Shorter periods of UI recipiency often make workers take jobs they are overqualified or ill-suited for, undermining economic efficiency. Indeed, the motivation to extend UI to ninety-nine weeks from 2008 to 2013 was to help people find jobs they were suited for, instead of dropping out of the labor force entirely when their benefits expire.
It is more likely that a confluence of factors are contributing to the persistence of long-term unemployment. While some workers are having a tough time finding jobs that match their skill sets, many more are having trouble finding jobs that pay well. Low-wage jobs have been a large source of job growth in the United States since the conclusion of the recession. Older workers and workers used to higher pay are not going to want to step down to a low-wage job. And there is still some slack in demand that keeps people out of work—likely a repercussion of austerity policies (budget cuts, public sector job cuts, etc.) that were implemented soon after the recession ended. Combine that with structural factors blocking communities from good jobs, and it’s clear that just waiting around for good jobs numbers the first week of every month will not cut it.
Getting People Back to Work
Work is an activity that gives many of us meaning in our lives, and when a livelihood is taken away, that absence can be alienating, leading to all sorts of personal and social problems. Human stories underlie the data presented above, and ought to invoke a sense of urgency among policymakers looking to get people back to fulfilling and high paying work.
Most of the long-term unemployed lost their jobs through no fault of their own, and the consequences of lingering unemployment are widely felt. Instead of blaming those struggling, policymakers need to think about policies that tackle both structural unemployment (technical change, regional shortages of jobs) and unemployment lingering from the last economic crisis.
Instead of blaming those struggling, policymakers need to think about policies that tackle both structural unemployment (technical change, regional shortages of jobs) and unemployment lingering from the last economic crisis.
There are several approaches that can be taken. One one hand, education and training programs can help direct people to high paying jobs. On the other, increased public spending and social supports can create quality jobs.
As we approach a full employment economy, job supports and job training programs will be essential to linking the long-term unemployed back to the jobs market. Some narratives around “skills mismatch” tend to blame the worker for falling behind in a changing economy. An alternative to the blame game is to convene communities, unions, workers, educational institutions and employers to develop training programs that are affordable and lead to clear career pathways. Apprenticeships can pay apprentices while they work and learn. Employers can help craft the curriculum, pay for training, and provide good jobs for graduates.
A more ambitious proposal would be a federal job guarantee (FJG) that provides a job to anyone who wants one at a wage at least above the poverty line for a family of four. Jobs created in education, child care, healthcare, and infrastructure could fulfill social needs that have been neglected through years of federal, state, and local belt tightening.
Plus, the FJG has the ability to get at structural unemployment and recessionary unemployment at the same time: it can provide jobs to communities usually excluded from good jobs (communities of color, rural towns, those without a college education), and can absorb the unemployed during recessions. For those that are near retirement or feel they are too old to retrain for a federal job, a minimum income is worth exploring.
Long-term unemployment is a social tragedy that affects millions of Americans. Job supports—especially a Federal Jobs Guarantee—could go a long way to making this recovery one for all.