How to Save the Long-Term Unemployed

More stimulus, incentives, and direct government hiring
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(Reuters)

Long-term unemployment is our most urgent crisis, and we're doing nothing about it.

In fact, Congress can barely be bothered to even talk about it. As Niraj Chokshi of National Journal reports, only four lawmakers showed up for the Congressional hearing on long-term unemployment on Wednesday. And three of them got there late.

In Congress' defense, there is a new Bowles-Simpson plan out.

For the first time since the 1930s, there are millions of people who want work who can't find it, no matter how long they look. That's what what happens when a downturn goes too long and a recovery doesn't go far enough. You can see that depressingly enough in the chart below that compares job openings and layoffs the past decade (which is as far back as the data goes). After Lehman failed, and it looked like everyone might need to brush up on their farming skills, there were more people getting fired each month than there were jobs available. But even after the panic passed, the jobs have been slow to return given the depth of the hole.

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Look at how few job openings there were six months after Lehmangeddon. It was just incredibly tough for people who got laid off during the depth of the crisis to find work soon afterwards -- or even years later. The chart below, via Megan McArdle, shows the cumulative effect of our horribly dysfunctional labor market: there were over 6.5 unemployed people per job opening in 2009, and that dismal ratio has since only gradually declined to something approximating a less complete disaster.

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In other words, there are lots of people who have been out of work for six months or longer who only made the mistake of losing their job at the wrong time. But that's unfortunately been enough to make them finding a new job a long shot.

Something happens when you've been out of work for half a year. Employers ignore you completely. That was the conclusion of a new field study by Rand Ghayad, a visiting scholar at the Boston Fed and a PhD candidate at Northeastern University, that showed that resumes with otherwise identical qualifications get called back far less if they list six months of unemployment. As Matt Yglesias points out, the problem is this kind of statistical discrimination against the long-term unemployed is pretty rational. Companies with a big stack of resumes to get through (which is all of them nowadays) will still have more than enough strong candidates left over if they screen out the long-term jobless, who presumably would have gotten a job before if they themselves were strong candidates. Now, this heuristic makes sense, but it makes less sense in the aftermath of the worst crisis in 80 years -- and much less sense on a macro level. After all, it makes us collectively poorer if the long-term unemployed become unemployable.

What is to be done about this unemployment trap? Well, there are two possible policy approaches: macro or micro. In other words, trying to reduce unemployment in general, or long-term unemployment in particular.

Mike Konczal, for one, thinks we should just focus on the economy, stupid, since nothing helps the long-term unemployed like a tighter labor market. As you can see in his chart below, people out of work for a year or more were 40 to 80 percent more likely to get a job during the tech boom as they are today.

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This is true, but being true isn't enough. It's not as if Congress is about to do more fiscal stimulus anytime soon or the Fed is about to do much more monetary stimulus beyond its already open-ended easing. In the meantime, long-term unemployment threatens to consign people to lives permanently at the fringes of the labor market. We can't wait for more stimulus.

There are some smaller-bore things we can and should do to help the long-term unemployed. Indeed, that's exactly what the sparsely-attended Congressional hearing was about. Former Romney economic adviser and current American Enterprise Institute fellow Kevin Hassett thinks it's time for a whatever-it-takes approach. Practically-speaking, that means the government should introduce work-sharing programs like Germany's Kurzarbeit, give businesses tax incentives to hire the long-term jobless, and hire the long-term jobless itself if nobody else will. Congressional Republicans probably wouldn't go along with this last idea, but the first two are the kind of thing that, in a sane world, shouldn't be ideologically polarizing. Now, these kind of targeted policies would admittedly only help at the margins, but helping at the margins is better than not helping at all. (Or, in the case of the sequester, actively hurting).

More stimulus and more direct help for the long-term unemployed are two great tastes that go great together. Either or both would be a welcome change from our malign neglect of the urgent crisis all around us.
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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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