Is Falling Long-Term Unemployment Good News?

The recovery might be leaving the long-term unemployed behind and on on their own


The jobs report in July was practically the same as the jobs report in June, which was practically the same as pretty much every jobs report each month going back to 2011. In fact, we can all save ourselves a bit of time if you just go back and read what I wrote last month: The recovery is the same as always.

Now, that doesn't mean nothing changed. The economy added 162,000 jobs in July, which was actually a bit below expectations, but basically in line with the recovery we've come to know and complain about. Meanwhile, revisions to the two previous months subtracted 26,000 jobs. But despite this, the unemployment rate fell from 7.6 to 7.4 percent for the good reason that we are creating jobs and the worse reason that some people left the labor force.

Is there any surprisingly good news here? Well, long-term unemployment has fallen from 5.1 to 4.2 million in the past year, which certainly sounds good. But is it? Keep in mind that the economy has only added 1.6 million full-time jobs and 300,000 part-time jobs over this period -- and we know that firms often won't even look at the resumes of the long-term jobless. So it seems unlikely that many of the 900,000 people who were long-term unemployed last year but aren't this year actually got jobs. They probably gave up looking.

And they probably gave up looking because long-term unemployment benefits have gotten cut. Now, conservatives like to blame these benefits for our high unemployment, and they're right -- just not for the reason they think. They say that too-generous benefits turn the safety net into a hammock for the funemployed, but the reality is that long-term benefits keep long-term unemployed people who otherwise would have stopped looking for work to keep looking. Indeed, Jesse Rothstein, a professor at the University of California-Berkeley, estimated back in 2011 that extended benefits had increased unemployment by 0.1 to 0.5 percentage points, but that least half of this increase came from fewer labor force dropouts. And more recent work by Boston Fed visiting scholar and Northeastern Ph. D. candidate Rand Ghayad found that the Beveridge curves the unemployed who are and aren't eligible for benefits are equally bad -- so it's hard to see much of a disincentive effect. In other words, extended unemployment benefits haven't kept people from trying; they've kept people from giving up.

But unemployment benefits have fallen fast the past year. Congress cut them from a maximum of 99 to 93 weeks back in February 2012 -- and even that seriously overstates what people can actually get. See, different states offer different benefit lengths. States with more unemployment have longer benefits -- but so do states with more generous governments. As you can see in the chart below from the Center on Budget and Policy Priorities, most states now offer benefits in the 40-63 week range. Just two years ago, it was 93 weeks or more for most states.


Shorter benefits mean fewer long-term unemployed have a reason to keep looking for work. So they don't. And voilà, unemployment comes down. At least more than it otherwise would have. And this raises a troubling possibility. The recovery might not just be leaving the long-term unemployed behind; it might be leaving them on their own. In other words, falling unemployment means falling benefits -- and the long-term unemployed get the short-end of the stick on both. It's perverse. And it's why the government might need to start hiring people who've been out of work for a long time -- who else will?

There are two possibilities here. Behind door number one, the government does something, anything, to help the long-term jobless. Maybe it hires them. Or maybe it gives companies a tax-incentive to hire them. And then there's door number two: we keep doing what we're doing, and maybe less. The recovery continues to ignore the long-term unemployed until they fall entirely out of the labor force into the uncounted masses where nobody can attach a statistic to their suffering, and we declare mission accomplished.

Something has to change.