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March 20, 2014 5:48 pm
America’s long-term jobless face huge obstacles in returning to steady full-time employment, with just 11 per cent succeeding over the course of any given year, according to new research that raises alarm bells about structural problems in the US labour market.
The study by Alan Krueger, a Princeton University economist who served as a top economic adviser to Barack Obama between 2011 and 2013, shows that even in good times and in healthy states the long-term jobless are “at the margins” of the labour market with little hope of regaining their footing.
A big spike in long-term unemployment – defined as joblessness extending beyond 26 weeks – has been one of the defining features of the US recession and its aftermath. There were 3.8m long-term unemployed in February 2014, according to the latest labour department data, more than double the pre-financial crisis level of 1.9m in August 2008. The share of the jobless who have been out of work for more than six months has nearly doubled over that timeframe, from 19.8 per cent to 37 per cent.
There has been some improvement in reducing the numbers of the long-term jobless in recent years, but it has been extremely slow, which can be traced to the findings in Mr Krueger’s paper regarding their troubles in finding new work – and even when they do return to work, they often lose that position again.
“After 15 months, the long-term unemployed are more than twice as likely to have withdrawn from the labour force than to have settled into steady, full-time employment,” the paper reads. “The subset of the long-term unemployed who do regain employment tend to return to jobs in the same occupations and industries from which they were displaced, suggesting that significant challenges exist for helping the long-term unemployed to transition to growing sectors of the economy,” it adds.
The findings by Mr Krueger – jointly with Judd Cramer and David Cho, also of Princeton University – were presented at a conference organised by the Brookings Institution, a Washington think-tank, on Thursday, and have implications for fiscal and monetary policy.
The paper could have an impact on discussions about US monetary policy. The study suggests that because the long-term unemployed are so frequently alienated from the labour market, they exert little pressure on wage growth or inflation.
This means that short-term unemployment – stripping out the long-term jobless – may be a better predictor of when prices could start to rise, possibly leading Federal Reserve officials to increase interest rates sooner than expected. The Fed this week dropped its reference to an unemployment rate threshold of 6.5 per cent under which it would consider raising interest rates from close to zero, in favour of “qualitative guidance” that could give it more flexibility.
Significant challenges exist for helping the long-term unemployed to transition to growing sectors of the economy
On the fiscal side, Congress in December allowed federal benefits for the long-term jobless to expire, and is still squabbling over whether to renew them until May, with retroactive effect. A bipartisan group of senators reached a deal that is backed by the White House last week to extend the benefits, and the legislation will be taken up by the upper chamber next week. But Republicans in the House of Representatives have been resisting the push.
“What the study says is we need a concerted effort to help the long-term unemployed get back on their feet,” Mr Krueger told the FT.
For several years, US economists have worried about the toll of the long-term unemployed on the recovery, amid concerns that it could herald an era of European-style hysteresis in the labour market. But the profile of America’s long-term unemployed is significantly different – the US jobless who have been out of work for months are in general older and better educated. “These differences suggest that long-term unemployment in the US reflects a different phenomenon than it does in countries that have had persistently high long-term unemployment,” the study said.
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