How Do You Solve the Tragedy of Long-Term Unemployment?

The economic crisis has had three phases. First came the firing crisis. The economy lost more than 500,000 jobs per month over six consecutive months around the president's inauguration. Second, came the hiring crisis. For the last two years, the economy's worst problem has been that firms aren't picking up new workers, even though most of them have stopped with the layoffs. The third phase is the crisis of long-term unemployment.

Fully 45% of the unemployed have been out of work for more than six months. One third have been out of work for more than a year. This makes for a multidimensional crisis. For an economy, growing ranks of long-term unemployed blunt workers' skills and leads to reliance on government welfare spending. For an individual, it contributes to depression as severe as losing a close friend or relative. Long-term unemployment isn't just a public policy problem. It's a tragedy. And it's emergence in this recession is nothing short of staggering.

Here's a graph that shows long-term unemployment's share of total joblessness since the recession began. It has increased more than 250 percent since December 2007.

LONG TERM UNEMPLOYMENT.png
This problem isn't going away any time soon. Quite the opposite: it is self-sustaining. The longer someone is out of work, the more likely they are to fall behind current skills, and the less likely they are to find work.

If we're going to solve the issue, we'll probably have to learn from our friends abroad, where long-term unemployment has been a more regular feature of the jobless ranks. Europe might have the most to share from experience. This graph compiled from OECD data shows long-term unemployment (out of work more than six months) at three intervals: in the mid-1990s, at the beginning of the recession, and today. The U.S. is unique: a historically short-term unemployment country going through a traumatic bout of long-term joblessness.  


long term unemployed.png
What can we do? I put our choices into three buckets.

1) Pay them

Unemployment insurance in the hardest hit states will pay out for 99 weeks, enough to cover nearly two years of unemployment. For millions of Americans, that isn't enough. For some economists, it's not only insufficient; it's harmful. Paying people to remain unemployed might make sense when there are few jobs to have. But when the economy recovers, a generous unemployment benefit system could encourage some people to continue to wait for the job they want rather than take the job that's open.

2) Train them

Germany took the opposite approach to No. 1 recently. They reduced the size and duration of their benefits and put the money in a national retraining and job-reassignment program. The unemployed work with the government to find work and take part in work-retraining and job application lessons. In particular, retraining should focus on the young. In 2011, the unemployment rate for teens and early 20-somethings was 17.4 percent in the advanced world, more than twice the rate for those 25 and older. "Targeting youth will reduce the risk of young people falling into long-term unemployment and losing touch with the job market," the OECD recommends. Job retraining programs have come under fire in the U.S. for not finding enough new work. But in this labor environment, maybe that's a bit like criticizing somebody for not finding much water in the Sahara Desert.

3) Hire them

This is the least likely option for the U.S., which is already going through a bout of quasi-austerity. But it remains the case that the easiest way for the government to make jobs is to literally make jobs. In the late 1930s, unemployment was on the rise after fiscal and monetary stimulus was reined in. By the mid-1940s, however, wartime unemployment was under 5 percent.


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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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