The number of unemployed for more than 26 weeks is a data point published by the DOL (U.S. Dept. of Labor). However, this number is far short of the actual long term lost labor impact in the economy. This discussion starts with the DOL reported number and will expand from there.
One out of 25 in the labor force is out of work more than 26 weeks. That amounts to 40% of the unemployed. This graph from the 5-Min. Forecast provides some historical reference. Long term unemployment is more than 1.5 times the level of the next worst previous recession.
The number unemployed for more than 26 weeks is 6.1 million. The number of permanent jobs loss (jobs that will never be refilled) is 5.0 million from the peak in employment in November, 2007. This calculated from the 57% permanent job loss shown in the following graph multiplied by 8.9 million total drop in employment.
There have been 2.0 million who have disappeared from the labor force in this recession, all since May, 2009. Obviously they have also disappeared from the ranks of the unemployed. It is a curious (but logical) fact that a person must be in the labor force to be counted as unemployed.
If someone who is not working has not actively sought work during the past four weeks, they are dropped from the labor force count. They are not working but are not counted as unemployed either.
The number of long term out of work is likely larger than the number of long term unemployed. The number of long term out of work is the number of long term unemployed plus the number disappeared from the labor force minus the net number who have retired minus the net number who have left the country.
In the preceding calculation, the term "net number" was used twice. In the first case, the net number retiring refers to an excess of retirements above the number entering he work force. This net is usually negative (i.e., more people enter the labor force than retire, due to population growth). It may be a small subtraction (more retiring than entering the labor force) in a severe recession.
The real question is whether there has been enough emigration of migrants out of the country to account for the two million decline in the labor force over the past eight months. Can the shrinking labor force be attributed mostly to foreign workers returning home in excess of the number coming into the country?
It is reasonable to assume that a large portion of the migrant workers referred to above would be classified in the DOL (U.S. Dept. of Labor) surveys as Hispanic or Latino. Since May, 2009, that number has declined by only 55,000. During most of the intervening seven months then number of Hispanics and Latinos in the labor force has actually been larger than in May. Since DOL polling does not include determination of immigration status, this is the best number I have found from which to infer the possible effect of migrant emigration on the shrinking labor force.
Reverse net flow (outflow or emigration) of illegal immigration does not make a significant contribution to the shrinking labor force. The number out of work long term should include most, if not all, of the two million that disappeared from the civilian labor force since May.
The DOL surveys also track another group of people that is not in the labor force but are classified as "want to work". That number in December was 5.9 million. I will assume that all of the two million missing from the labor force are in this group, although it is almost certainly not true. That means we have an additional 3.9 million that are long term out of work, but not officially unemployed.
In addition, due to population growth about one million additional people would normally enter the labor force in a seven month time period.
Adding all these factors up, the long term out of work number is approximately 13 million, more than double the official number unemployed for more than 26 weeks. The 13 million is also much more than 2.5 times the five million permanent job losses measured by the DOL.
These numbers are presented in the following graph:
The long term out of work number is under estimated for the following reason:
1. The net number who want work is probably larger because not all of the 2 million disappearing from the labor force were actually also counted in the 5.9 million who are not in the labor force and who want work.
The long term out of work number is over estimated because:
2. Not all of the 2 million who disappeared from the labor force will ever return, and so not all should be included in the long term out of work.
3. Also, some of the 6.1 million permanent job losses may have found new employment in a different job.
The net of these uncertainties is such that the long term out of work error is probably to the high side. I can not quantify by how much, but 1-2 million would not be out of the question.
A good summary of the situation is that the number of long term out of work is probably 11-12 million, compared to the number of unemployed for more than 26 weeks reported by the DOL of 5 million.
These numbers just reinforce the conclusion that it will take a very long time for employment to return to normal levels. See here and here for more details.
Disclosure: No stocks mentioned.
