America's unemployment rate is sky-high, but not unprecedented. It was worse for much of 1982, the year of Michael Jackson's "Thriller," Steven Spielberg's "E.T.: The Extra-Terrestrial" and Ronald Reagan's TEFRA. (The oft-forgotten Tax Equity and Fiscal Responsibility Act, which was passed a year after a well-remembered slashing of personal income tax rates, constituted what former Reagan advisor Bruce Bartlett would later call "the largest peacetime tax increase in American history.”)
However, one aspect of the current jobless problem has no precedent in the data. In June, the long-term unemployment rate, defined as the percentage of the labor force that has been jobless for more than half a year, hit its highest point since 1948, when the Bureau of Labor Statistics began data tracking. The numbers improved only slightly during July and August.
A glance at the second chart below shows just how out-of-whack the long-term jobless rate has become. Perhaps more unsettling is the average number of weeks of unemployment, shown on the third chart.
"A number of factors can affect the long-term unemployment rate, including the reservation wage and the savings level," says Randy Ilg, an economist with the BLS. The reservation wage is the lowest wage at which a worker will accept a job offer. An optimistic reading of the numbers might hold that many workers, unimpressed with available jobs, have been simply holding out for better ones while living off savings. If that's the case, the recent dip in the long-term unemployment rate might signal a lowering of the reservation wage – an increased willingness of job-seekers to accept disappointing salaries.
Government might have had a hand in the problem, too. Unemployment payments for laid-off workers typically last 26 weeks. When jobs are scarce, states make available at least 13 weeks of extended benefits, and some offer up to 20 weeks, for a maximum collection period of 46 weeks. Record extensions created since 2008 have allowed for up to 99 weeks of benefits lasting until April 2011 – and increase the dollar amount for all recipients.
Those measures have surely kept some struggling families from slipping into poverty. The problem is, they've also likely increased the unemployment rate by at least a modest amount. According to estimates by the Federal Reserve Bank of San Francisco, the headline unemployment rate of 10.0% at the end of 2009 would have been 9.6% if not for the additional benefits extensions.
One more possibility, presented by a trio of researchers earlier this year, has to do with a breakdown of something called the Beveridge curve, named for British economist William Beveridge. It shows an inverse relationship between the job vacancy rate and the unemployment rate. A high unemployment rate, after all, logically suggests that there are few job openings. The researchers point out that the unemployment rate has recently been higher than the Beveridge curve suggests it should be (which helps explain why a technology manager recently complained to me about being unable to fill programmer positions). "An important concern for the strength of the recovery is that, even if firms create new jobs, it will be harder to match workers with the appropriate job openings," the authors note.
In other words, America's long-term jobless might be unlucky, unwilling, unskilled or some combination of the three. Whatever the reason, the longer they lack work, the harder it will be for them to find it again.
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."
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