Long-Term Unemployment Is Much Worse Than You Think

The worst legacy of the Great Recession is the worst long-term joblessness since the Great Depression
People line up at a job fair in New York (Reuters)

Pop quiz, Washington. What's the biggest menace to the economy right now? Is it: (1) the budget deficit, (2) inflation, or (3) long-term unemployment? The presidential campaigns will tell you it's the deficit. The Federal Reserve might tell you it's inflation. But with our debt cheap and inflation low, it's clear that the right-now crisis is that people out of work can't find their way back in.

Long-term unemployment hasn't been this high since the Great Depression. It's an economic scourge because the longer you're out of work, the harder it is to get work. Employers lose confidence in the jobless and the jobless lose skills the longer they go without a job. Stay unemployed too long and you become unemployable. Jennifer Medina of the New York Times offers a depressing glimpse into this world that should be required reading for every member of Congress and the Federal Reserve. Economist Justin Wolfers summed it up with these three daunting numbers: "1600 resumes sent out; ten interviews; zero jobs."

So, just how bad is our historically bad long-term unemployment problem? Right now, 3.3 percent of the labor force has been unemployed for at least 27 weeks. That's awful, although not as awful as it was back in 2010 when the number was 4.3 percent. But as Evan Soltas points out, unemployment has become a horrible measure of unemployment. Some of the unemployed get discouraged and stop getting counted as "unemployed." If we count them, long-term unemployment more than doubles.

The chart below gives us a better sense of the depth of our economic misery. It looks at the people unemployed for 27 weeks or longer, and the people not in the labor force who want a job now. Remember, you have to actively look for work in the past month to be considered "in" the labor force. It divides this number by the labor force plus the number of discouraged workers who want a job to give us our "true" long-term unemployment rate. It's 7.3 percent -- down from a high of 8 percent in late 2010. (Note: Non-labor force members who want work aren't necessarily long-term unemployed -- they could also be students or stay-at-home parents, etc.. But it's still a decent proxy for long-term discouraged workers).


Long-term unemployment has long-term consequences. We can't make as much stuff when we have fewer people making stuff -- and fewer people making stuff is what will happen if people become unemployable. It's what economists call hysteresis, and it's why stimulus might pay for itself now.

Just don't expect to hear any politicians talk about this. Stimulus has become a four-letter word, and theoretical problems are easier to solve than actual ones. So let's talk about their gaffes.