The US economy added 321,000 payroll jobs in November, the best in almost three years. Strong upward revisions to September and October numbers boosted the 12-month gain to 2,756,000, a new high for the recovery.
The official unemployment rate was unchanged at 5.8 percent. The broad unemployment rate, U-6, which takes into account discouraged workers and involuntary part-time workers, fell to a new low of 11.4 percent.
Although these data indicate a return to normal in many respects, distortions remain. One of the most conspicuous is an elevated rate of long-term unemployment. As the following chart shows, the term structure of unemployment remains substantially different from the pre-recession pattern:
On the one hand, we see that the short-term unemployment rate, made up of people who are out of work for four weeks or less, has not only returned to its pre-recession level, but has actually dropped below it. In 2007, short-term unemployment averaged 1.66 percent of the labor force; now it is 1.61 percent. Most unemployment in this category is voluntary, representing a minimum time needed for job search, interviews, moving, and perhaps a quick vacation between jobs. It includes people who find work soon after entering or re-entering the labor force or find a new job quickly after leaving a former one.
At the other end of the spectrum, we find people who are out of work for 27 weeks or longer at a stretch, some much longer than that. Most of the painful stories of labor market distress come from this category. It includes young college graduates who look for months without finding work in their field of study. It also includes people who have been laid off after years of steady work and can find nothing acceptable to replace it. The chart shows that long-term unemployment has fallen significantly from its peak, but at 1.8 percent of the labor force, it remains far above its 2007 average of 0.8 percent.
Some observers have attributed the high rates of long-term unemployment to the availability of extended unemployment benefits, that is, benefits beyond the 26-week norm that prevailed in most states before the recession. A recent study from the Boston Fed concluded that there was some truth to that hypothesis. However, the study did not support the popular idea of deadbeats who only pretend to look while their benefits lasted, and then, when benefits finally run out, quickly take a job that they could have taken at any time. Instead, the study found that the most common pattern for the long-term unemployed was to draw benefits as long as they could, and then withdraw from the labor force entirely without ever finding work.
Evidently, though, other factors are at work as well, since extended unemployment benefits have been substantially phased out since 2012 without bringing the long-term rate back to its pre-recession level. Other suggested influences include technological change, globalization, and demographic factors. It is also worth noting that the rise in long-term unemployment is not entirely new to the Great Recession that began in 2008. We can see from the chart that even after the short, shallow recession of March to November 2001, the long-term rate failed to return to the level of less than 0.5 percent that it reached in 2000.
Clearly, there are many unanswered questions here. I will take a closer look at some of them in future posts.
Follow this link to view or download a brief slideshow with charts of the latest US employment situation