The Truth About Long-Term Unemployment

The private sector is the only entity that can lead the U.S. out of its jobs rut.

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Keith Hall is a senior research fellow at the Mercatus Center at George Mason University, and former commissioner of the Bureau of Labor Statistics.

This has been a historically slow economic recovery, and one of the results has been the persistent and unprecedented number of long-term unemployed. As bad as the official data appears, it actually underestimates the problem.

There are almost certainly millions of people that are long-term jobless that are not considered unemployed by the Bureau of Labor Statistics. Although other factors may have contributed to this, the main cause is slow economic growth. So at this point in time, the question that we should be asking is not: What should the government do to help the labor market perform better? We should be asking: What can we do to encourage stronger private sector growth?

There are currently 4.6 million long-term unemployed in the Unites States. Two-thirds of these people have been jobless for over a year and might be classified as "very long-term unemployed."

[See a collection of political cartoons on the economy.]

But, large as these numbers are, they dramatically underestimate the long-term jobless problem. Millions of people that have struggled to find work have stopped looking altogether, and this disengagement from the labor force has driven down the unemployment rate without reducing joblessness. To be counted as "long-term unemployed" (as opposed to "long-term jobless"), an individual needs to have no work whatsoever for six months, be nearly instantly available if offered work and be actively looking for work.

By actively looking, he or she must send out a resume, interview for a job, engage an employment agency or engage in some other sort of activity that, by itself, could result in employment. Checking for new job openings on the Internet or in the newspaper alone does not qualify as active job search.

This sets a high bar for someone to remain unemployed for long enough to be considered as long-term unemployed. In 2007, the average unemployed person who eventually exited the labor force looked unsuccessfully for work for just under nine weeks. In 2011, this had risen to over 21 weeks. That means the average person that left the labor force did so before being even classified as long-term unemployed and almost certainly could eventually be called long-term jobless.  Millions of people have dropped from the labor force over the past five years who perhaps should still be counted as long-term unemployed.

[Read the U.S. News Debate: Should Congress Extend Federal Unemployment Benefits?]

In a more typical economic recovery, within a year or two we have strong economic growth, the employment rate rises and the long term jobless start to get rehired. So far none of this has happened.

Though many have faulted the labor market for this slow turnaround, it has actually outperformed GDP growth. In 2010 the economy grew 2.4 percent. In 2011 growth slowed to 2.0 percent.  In 2012 it slowed further to just 1.7 percent. Last year we averaged approximately 183,000 new jobs per month, but based on historic trends, the GDP growth we had should have created only 120,000 jobs per month.

At the current pace, it would take over a decade to return to the employment rate we had prior to the recession. Remarkably, surveys of small business owners show they are more worried about tax rates and regulation than they are about weak demand for their products. So, the answer right now is doing what we can to eliminate the tremendous amount of uncertainty over economic policy that is holding back consumers and the economy. Record levels of government spending haven’t reduced poverty, and government spending won’t fix the economy, either. Only a more vibrant private sector can solve the problem.

Mercatus Center

Source: Mercatus Center

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