« Long-Term Unemployment"”Posner | Main
Greater unemployment is a casualty of every recession, and the so-called Great Recession is clearly no exception. The unemployment rate grew from under 5% to just over 10% at its peak, and has fallen during the past few months a little to 9.7%. Most forecasters are predicting only a gradual further decline in the unemployment rate during 2010, and some even predict that this rate will increase before it continues to fall again. Aside from its level, the most disturbing feature of the unemployed is its composition since many of them have been without a regular job for over six months.
Men and women who are unemployed for a relatively short time-say for no more than a few months- create relatively few problems for themselves or the economy. They can usually finance their consumption while unemployed- such as on housing, food, and other basic expenses- out of their own savings, unemployment compensation payments, and from loans from family and friends. The long-term unemployed are the major problem. And the fraction of the unemployed who have been out of work for six months or more increased greatly during the Great Recession to reach over 40% of the unemployed in February 2010. The average period of unemployment for these long -term unemployed is about 7 months. Only a year earlier, in February 2009, the long-term unemployed constituted only 22% of the total number of unemployed persons, and even that percent was up from its share of the unemployed at the beginning of the recession in December 2007.
The long-term unemployed tend to lose confidence in their abilities, their resources to finance their consumption gets depleted, and their skills begin to depreciate. They may be forced to uproot their families to move to new communities where employment is more readily available. As a result of all these factors, their family life undergoes considerable stress, which leads to marital problems, and not infrequently to divorce. These effects are all reasons why special attention has to be given to reducing the rate of long-term unemployment, and mitigating some of its harmful effects.
In most respects, the characteristics of the unemployed are similar during this recently ended recession as it has been during all prior recessions, and even the Great Depression of the 1930s. Unemployment is concentrated among the young, less educated, and low skilled. For example, according to the March 10th report of the Bureau of Labor Statistics, (seasonally adjusted) unemployment rates in February of this year was 16% for high school dropouts, 11% for high school graduates, only 8% for persons with some college or associate degrees, and a quite low 5% for persons with a bachelor's degree and higher levels of education. Similar differences are found by age and skill level. So despite all the attention given to the growth in the unemployment of highly educated persons from the financial sector, the burden of increased unemployment is still being mainly borne by the young and less skilled.
Although more educated and older workers are far less likely to become unemployed, once they do they have a much tougher time finding jobs that pay them close to what they had been getting while employed. This is why college educated and older workers constitute a much larger percent of the long term unemployed than they do of the total number unemployed. These differences in long-term unemployment are easy to understand. Many kinds of low paying jobs are available to the young and high school dropouts in all parts of the country. This means that these workers can relatively easily find other jobs if they become unemployed, even though the new jobs may not last so long and they may have to seek still other jobs. Finding other jobs with comparable pay to their old ones is much harder for more skilled and experienced workers since they are more specialized in their knowledge. They may have to move to another region to get suitable employment.
The fraction of workers who have been unemployed for at least 6 months tends to rise for a while after a recession, even after the overall unemployment rate starts to fall. This is not surprising since the fact that a person has been unemployed for many months is an indication that he or she cannot easily find a new job. As a result, the long-term unemployed are less likely than other unemployed workers to find jobs quickly after the economy begins to pick up.
In several of the prior recessions, the unemployment rate came down slowly after the recession was over. The Great Recession ended during the third quarter of 2009, yet the unemployment rate continued to rise for a few months after that. It has now started to decline slowly, and is likely to continue to fall at a slow rate. Regrettably, the decline may be particularly slow in the present situation because Congress and the President have created too much uncertainty about, among other things, health care costs to employers, taxes on higher incomes and on businesses, taxes on carbon emissions, caps on the pay of some executives, and the new regulations of lenders. Businesses are reluctant to take on many additional employees until they become more certain about their costs, and the direction the economy is moving in.
Unfortunately, several remedies that have been suggested to reduce the rate of long-term unemployment will be ineffective. For example, many people believe the solution is to retrain the long-term unemployed. However, retraining adults of all ages, but especially older workers, have generally been failures: it is much too costly relative to the benefits in terms of new jobs.
A current proposal in Washington is to give companies a subsidy if they hire workers who have been unemployed for longer than a few months. The problem with this proposal is that the Job Openings and Labor Turnover Survey (or JOLTS-I am indebted to Ed Lazear for bringing these data to my attention-) shows that even during this period of high unemployment, there are about four million new hires every month, and slightly more separations than that when employment is falling. So the great majority of the new hires that would receive a subsidy under such a proposal to stimulate employment would have occurred anyway. The program would end up being another costly subsidy to businesses.
The only real remedy for the long-term (and other) unemployed is to have the economy grow fast, as it did after the severe recession in 1982 when unemployment peaked in December of that year at 10.8%, and then fell rather rapidly. There is no magic bullet to accomplish this, but I do believe it would help a lot if the leaders in Washington did not try to radically transform various aspects of the economy while we are recovering from a serious recession, and thereby magnify the high degree of uncertainty that is typically caused by a recession. Instead, they should be concentrating on fighting the recession, and stimulating long-term economic growth.
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Wouldn't it be better to eliminate the costs of employment. There are several taxes that go into effect when you employ someone. Why not make it cheaper to employ people?
Uh, do you mind helping me out a bit. You first write the young and those with lower educational attainment are suffering from severe job losses. Then you go on to say that jobs are easily available to the young and those with lower education. Something doesn't jive there ...
Also, Mr. Becker, I'm surprised at you. The father of rational addiction, the ultimate statement of the hyper-rational individual is now conceding that business people are retarded. That they are just stupid.
Yes, obviously they are worried about the costs of a health care bill which has been basically in its same form for months. That has been scored by the CBO. That has been analyzed inside and out by every policy tank. That doesn't take effect for several years.
Yes, obviously they are worried about the costs of tax hikes on them. Policies they could look up with a basic google search.
Yes, obviously they are worried about the costs of cap and trade which has been basically in its same form for months in the house. That has been scored by the CBO. That has been analyzed inside and out by every policy tank. That doesn't take effect for several years. Did we mention the costs to consumers? It's extremely small, according to every non-partisan analysis.
Yes, obviously they are worried about caps on executive pay. Oh wait, nobody who actually employs the people who are unemployed are even eligible. I'm sure those young and high school dropouts you are looking at would love a a job at AIG, somehow I don't think they are going to get it though. So, clearly they are holding back the employment picture.
Yes, obviously the market is scared about new regulations on lenders. That's obviously why they aren't taking out loans now. Think about this. If business people were "scared" about lending in the future, wouldn't they try to get the loans as this very moment and expand at this very moment to prevent this travesty? And yes, clearly, our lending standards in recent years have been top-notch so obviously the business community would prefer them to stay the way they were prior to this mess. Obviously the business community wants a replay of this.
So, for your story of "uncertainty" to hold water, we have to immediately assume that business owners are stupid. In which case, we don't really need the uncertainty story to explain anything. Let's cut out the middle man and just call them stupid.
I have one question for you Mr. Becker. Is what took the business community so long to re-hire under the Bush administration due to the uncertainty of his policies ... ? Perhaps you didn't notice, but the labor market wasn't exactly a glowing success story under Bush, and it took an artificial housing boom for the idiot business owners to realize how certain they were of his policies. And by your primitive correlation logic, can we also conclude that stupid business owners were so certain and so excited about the Clinton health care plan and the tax hikes that they started hiring and the economy boomed? Obviously that must be what happened.
Give me a break. When will people realize that economic fundamentals are far more important that whatever policy the government comes up with?
Also, could I purpose a different hypothesis on why business people aren't hiring. Could it be, and I'm just making a wild conjecture here, a combination of the following:
(i) commercial lending is still incredibly weak, (ii) consumer loans are slightly down, (iii) household starts are still very low harming the construction industry, (iv) a continuing weak retail market, (v) continued deflationary pressures (seen the CPI lately?) posing a risk to the recovery making employers more skeptical of a sustained, robust recovery, and (vi) a continually weak export market.
I'm just guessing that those six things might be playing a very minor role, but what do I know.
"Although more educated and older workers are far less likely to become unemployed, once they do they have a much tougher time finding jobs that pay them close to what they had been getting while employed. This is why college educated and older workers constitute a much larger percent of the long term unemployed than they do of the total number unemployed. These differences in long-term unemployment are easy to understand." The author omit one key factor of late 90 and 2000: massive production of MBAs occupied key hiring post (just look the MBA school ads voice the networking as key enrollment of MBA schools). The young MBAs with a year or two in the industry is less likely to hire any older experienced workers. In security all written on their face during the interview. They are most likely hire less qualify personnel to keep the position safe. It is self defense mechanism. You can not blame to do so. Especially, when someone come from the MBA program that do not require any work experience as requisite upon entry. it is human nature and fighting for the survival (the fittest is rather sickening). The overall impact on the industry and society is damaging beyond repair for at least one generation. (been there, 1st hand experiences... I am currently employed by a PhD with more than 25 years of industry experiences, I think the prof should step out of school and interview few of the high ranking workers for a change... it would do a lot of good to change mindset).
Ted, Good points and typically it seems our Profs do lean heavily on the fundamentals and conclude that next to nothing can be done by gov to improve things. And, agreed, were the economy rolling along all the elements up before Congress would be small spuds as they probably are even in this deep recession.
They seem to assume there are fundamentals that "should" improve hiring in the near future, but I wonder. For over a decade I was nervous about the "housing boom" and expected that when it flattened out we'd have big problems and that w/o it ending in the financial crash.
Consider, at the peak we had 2.5 million starts a year, despite household formation of 1.2 million or so. The housing industry is not just the 2.5 million starts times $250k median selling price, but that of most buyers buying new appliances, furniture, furnishings, and electronics. Additionally there are the commissions on loan originations, realtors fees for both the new and old home, and the long tail of interest costs on new larger loans. Contractors for the city are busied running utility lines that are built now but paid for over time.
Today housing starts are 600,000 or so and likely capped somewhere near the million mark while excess housing stock is, hopefully! soaked up. (I do expect some uptick this summer as the foreclosures combines with few starts has skewed the product mix in many markets.. ie a 500k foreclosure for half that price might be a great deal, but still beyond the means of younger starter home buyers and perhaps are not in the right place either.)
I don't know how many full time job equivalents the building of a new home accounts for but say it is 3 - 4 so being off by 1.5 million starts might add to 5 million jobs, though some will find work repairing and remodeling existing housing or have some other craft to ply... if the jobs exist.
Retailing? What's the outlook for that sector? In addition to the recession and it seeming we've been over retailed for a long time there are the productivity increases of "box stores" and the internet that means what retailing is done will require a lot few people.
Then, weak commercial is related to weak retailing and likely some effect of computers enabling fewer people in fewer cubicles to handle more business.
Well, to keep this reasonably short, I don't forsee us climbing out of the ditch without government leadership incenting infrastructure repairs and upgrades, and energy conservation/alternatives industries.
Recently I learned that Euro had 17 million Chinese visitors at $6,000 a visitor while the US had just 300,000, apparently due to visa difficulties. If forgoing $50-$100 billion of visitor income iis from "terrorist fear" it would seem the terrorists are winning!
BTW if folks have difficulties posting here, it seems the thing has a time limit after which you'd have to copy your post, refresh the page, paste, and then type at least one character.
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Wouldn't it be better to eliminate the costs of employment. There are several taxes that go into effect when you employ someone. Why not make it cheaper to employ people?
Uh, do you mind helping me out a bit. You first write the young and those with lower educational attainment are suffering from severe job losses. Then you go on to say that jobs are easily available to the young and those with lower education. Something doesn't jive there ...
Also, Mr. Becker, I'm surprised at you. The father of rational addiction, the ultimate statement of the hyper-rational individual is now conceding that business people are retarded. That they are just stupid.
Yes, obviously they are worried about the costs of a health care bill which has been basically in its same form for months. That has been scored by the CBO. That has been analyzed inside and out by every policy tank. That doesn't take effect for several years.
Yes, obviously they are worried about the costs of tax hikes on them. Policies they could look up with a basic google search.
Yes, obviously they are worried about the costs of cap and trade which has been basically in its same form for months in the house. That has been scored by the CBO. That has been analyzed inside and out by every policy tank. That doesn't take effect for several years. Did we mention the costs to consumers? It's extremely small, according to every non-partisan analysis.
Yes, obviously they are worried about caps on executive pay. Oh wait, nobody who actually employs the people who are unemployed are even eligible. I'm sure those young and high school dropouts you are looking at would love a a job at AIG, somehow I don't think they are going to get it though. So, clearly they are holding back the employment picture.
Yes, obviously the market is scared about new regulations on lenders. That's obviously why they aren't taking out loans now. Think about this. If business people were "scared" about lending in the future, wouldn't they try to get the loans as this very moment and expand at this very moment to prevent this travesty? And yes, clearly, our lending standards in recent years have been top-notch so obviously the business community would prefer them to stay the way they were prior to this mess. Obviously the business community wants a replay of this.
So, for your story of "uncertainty" to hold water, we have to immediately assume that business owners are stupid. In which case, we don't really need the uncertainty story to explain anything. Let's cut out the middle man and just call them stupid.
I have one question for you Mr. Becker. Is what took the business community so long to re-hire under the Bush administration due to the uncertainty of his policies ... ? Perhaps you didn't notice, but the labor market wasn't exactly a glowing success story under Bush, and it took an artificial housing boom for the idiot business owners to realize how certain they were of his policies. And by your primitive correlation logic, can we also conclude that stupid business owners were so certain and so excited about the Clinton health care plan and the tax hikes that they started hiring and the economy boomed? Obviously that must be what happened.
Give me a break. When will people realize that economic fundamentals are far more important that whatever policy the government comes up with?
Also, could I purpose a different hypothesis on why business people aren't hiring. Could it be, and I'm just making a wild conjecture here, a combination of the following:
(i) commercial lending is still incredibly weak, (ii) consumer loans are slightly down, (iii) household starts are still very low harming the construction industry, (iv) a continuing weak retail market, (v) continued deflationary pressures (seen the CPI lately?) posing a risk to the recovery making employers more skeptical of a sustained, robust recovery, and (vi) a continually weak export market.
I'm just guessing that those six things might be playing a very minor role, but what do I know.
"Although more educated and older workers are far less likely to become unemployed, once they do they have a much tougher time finding jobs that pay them close to what they had been getting while employed. This is why college educated and older workers constitute a much larger percent of the long term unemployed than they do of the total number unemployed. These differences in long-term unemployment are easy to understand." The author omit one key factor of late 90 and 2000: massive production of MBAs occupied key hiring post (just look the MBA school ads voice the networking as key enrollment of MBA schools). The young MBAs with a year or two in the industry is less likely to hire any older experienced workers. In security all written on their face during the interview. They are most likely hire less qualify personnel to keep the position safe. It is self defense mechanism. You can not blame to do so. Especially, when someone come from the MBA program that do not require any work experience as requisite upon entry. it is human nature and fighting for the survival (the fittest is rather sickening). The overall impact on the industry and society is damaging beyond repair for at least one generation. (been there, 1st hand experiences... I am currently employed by a PhD with more than 25 years of industry experiences, I think the prof should step out of school and interview few of the high ranking workers for a change... it would do a lot of good to change mindset).
Ted, Good points and typically it seems our Profs do lean heavily on the fundamentals and conclude that next to nothing can be done by gov to improve things. And, agreed, were the economy rolling along all the elements up before Congress would be small spuds as they probably are even in this deep recession.
They seem to assume there are fundamentals that "should" improve hiring in the near future, but I wonder. For over a decade I was nervous about the "housing boom" and expected that when it flattened out we'd have big problems and that w/o it ending in the financial crash.
Consider, at the peak we had 2.5 million starts a year, despite household formation of 1.2 million or so. The housing industry is not just the 2.5 million starts times $250k median selling price, but that of most buyers buying new appliances, furniture, furnishings, and electronics. Additionally there are the commissions on loan originations, realtors fees for both the new and old home, and the long tail of interest costs on new larger loans. Contractors for the city are busied running utility lines that are built now but paid for over time.
Today housing starts are 600,000 or so and likely capped somewhere near the million mark while excess housing stock is, hopefully! soaked up. (I do expect some uptick this summer as the foreclosures combines with few starts has skewed the product mix in many markets.. ie a 500k foreclosure for half that price might be a great deal, but still beyond the means of younger starter home buyers and perhaps are not in the right place either.)
I don't know how many full time job equivalents the building of a new home accounts for but say it is 3 - 4 so being off by 1.5 million starts might add to 5 million jobs, though some will find work repairing and remodeling existing housing or have some other craft to ply... if the jobs exist.
Retailing? What's the outlook for that sector? In addition to the recession and it seeming we've been over retailed for a long time there are the productivity increases of "box stores" and the internet that means what retailing is done will require a lot few people.
Then, weak commercial is related to weak retailing and likely some effect of computers enabling fewer people in fewer cubicles to handle more business.
Well, to keep this reasonably short, I don't forsee us climbing out of the ditch without government leadership incenting infrastructure repairs and upgrades, and energy conservation/alternatives industries.
Recently I learned that Euro had 17 million Chinese visitors at $6,000 a visitor while the US had just 300,000, apparently due to visa difficulties. If forgoing $50-$100 billion of visitor income iis from "terrorist fear" it would seem the terrorists are winning!
BTW if folks have difficulties posting here, it seems the thing has a time limit after which you'd have to copy your post, refresh the page, paste, and then type at least one character.
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