A Note on the Long-Term Unemployed and Duration

by: Rortybomb

It is probably very easy to sound like Chicken Little with how bad the economy is these days and how concerned everyone should be about new numbers coming out. But it needs to be said again and again: Friday’s BEA numbers should have everyone worried. As Scott Sumner notes, No more jobs mystery. Period. End of story. “The new GDP numbers are the final nail in the coffin.”

There also shouldn’t be any mystery of long-term unemployment either. Every month the average and median duration of unemployment goes up, reflecting a large share of the unemployed being unemployed longer. Commentators are surprised. Right-wing economists come up with all kinds of convoluted theories about how the long-term unemployed are taking a year off to coach junior’s baseball team (instead of suffering high rates of mental illness and suicide from the shock that comes with being out of the workforce for an extended period of time). But the simple answer is that there was a period in 2009 when the economy shoved 7 million people out of the workforce and then stopped creating jobs.

Here’s a graph that shows the change in unemployment from month to month. Click to enlarge:

Meanwhile, job hires are way down. Click to enlarge:

A lot of people were thrown out of the labor force in 2008-2009 and then our economy adds little-to-no jobs for 2 years – of course there are a lot of long-term unemployed out there! To the extent that people are dropping out of the labor force it is likely juking the duration statistics down. But the long-term unemployed aren’t a mystery with the GDP numbers we’ve seen; it is exactly as it should be given how depressed the economy is.

There’s a lot of talk about “hysteresis”, about what happens to the wages and employability of the long-term unemployed the longer they are unemployed. Maybe that will be an issue and maybe it won’t. We won’t know until the economy actually picks up again, and we’ll know even less if we don’t stop the possibility of a double-dip recession. It’s a serious danger, and it reflects the awful things our economy is doing to our country’s citizens, but it doesn’t show up as an aggregate check on our economy yet.