Unemployment Begets Unemployment: How Do We Solve This?

Examining the process by which longterm unemployment decreases a person's ability to find a job

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The November jobs report came out today, and it's not good. Meanwhile, The New York Times has just published Catherine Rampell's story looking at the way unemployment self-perpetuates: "the longer people stay out of work, the more trouble they have finding new work."

So let's take a look at this problem. What's the mechanism behind it? How sure are we that this is a case of causation (i.e. longterm unemployment making it harder to get hired) and not correlation (e.g. people who aren't great at getting themselves out there to apply may not be the best candidates)? What does the new jobs report say about this trend, and how can it be combated? A few thoughts from around the blogosphere:

  • The Way the Vicious Cycle Works  Though "in some cases, the long-term unemployed were poor performers in their previous positions and among the first to be terminated when the recession began," and "in other instances, those who lost jobs may have been good workers but were laid off from occupations or industries that are in permanent decline," explains Rampell, "economists have tried to control for these selection issues." They still find that there's a connection between unemployment duration and ability to find a job. In other words, "experience of unemployment itself damages job prospects." The long-term unemployed probably have "more trouble getting hired," she writes, "because of some combination of stigma, discouragement and deterioration of their skills." In addition, "constant rejection not only discourages workers from job-hunting as intensively, but also makes people less confident when they do land interviews."
  • No Encouragement in the Report  New York Magazine's Nitasha Tiku pulls some numbers out of the mess: "More than 15 million Americans are out of work, and 6.3 million of them have been unemployed for six months or longer. ... Another grim record," she notes, "which could work against extending benefits to the unemployed, is that high of 1.3 million 'discouraged' workers who reported not looking for jobs because they believe there are none available."
  • So What Do We Do About It?  Bill McBride at Calculated Risk sees this a good example of "why it is critical to help the unemployed." Though he highlights Rampbell's point that "direct employment programs--like the public works projects of the New Deal era" aren't popular, and risk "crowding out businesses and displacing other workers," as she writes, he also latches onto another she makes: that they also "might be the fastest way to put people back to work. McBride's bottom line:
If structured correctly--in an environment with a 9.6% unemployment rate--the "crowding out" would be minimal. As far as the politics--well, I support a direct hiring program--and I have no expectation of it happening.
  • Syncing the Data With Economic Theories  "I believe that the unemployment problem is predominantly cyclical, but this [story] helps to explain one of the reasons why, even if the problem is largely structural, we still need to try to help," writes economist Mark Thoma. "If we don't find a way to provide jobs for people while the cyclical and structural issues work themselves out, if we allow high unemployment rates to persist, some of the long-term unemployed will drop out of the labor force permanently. Thus, one of the costs of high unemployment is that some people will leave the labor force and never work again."
This article is from the archive of our partner The Wire.