Some of the Unemployed May Never Work Again
More folks than ever before have been out of a job for a year or more. The prognosis for them isn't good. And that spells bad news for the economy.
It's likely to take five or more years for the ranks of the long-term unemployed to return to a more normal level. With the unemployment rate remaining stubbornly high and job creation anemic, the number of would-be wage earners who have been out of work for a year or more is ballooning. It's risen from 668,000 when the recession began at the end of 2007 to the current tally of 4.3 million -- nearly 3% of the labor force and almost three times the previous post-World War II high of 1% in 1982.
That time, it took about five years for the number of long-term unemployed Americans to recede to its prerecession total. This time, there's reason to believe the tide will take longer to ebb. One reason: In the roughly 60 months since the inflated housing market crested, about 2 million jobs in construction have disappeared. Although housing construction will gradually recover, it won't return to bubble levels for a couple of decades, at least. As a result, many of today's unemployed construction workers may never earn a paycheck again. Moreover, the longer someone is out of work, the less likely he or she is to return to the workplace. Job skills atrophy, especially in fields that require computer use or other rapidly evolving technology.
What's more, following this recession, the spectrum of workers finding themselves out of work for a prolonged period is broader than in the past. Just 35% of those now counted among the long-term unemployed were working in factories before the recession. In the downturn of the early 1980s, 55% of those with no jobs for a year or more came from factories. This time, a greater portion were earning their livings in finance, insurance, real estate and business services. The ratio of college graduates is higher now, too.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The fact is, "natural unemployment" has probably crept up in recent years. In the late 1990s, many economists considered the nation to be at full employment with a jobless rate around 4% -- just enough to account for folks moving between jobs plus enough slack to prevent wage inflation. Now economists figure that the benchmark is about 5.5% unemployment, maybe even 6% -- closer to what had been considered natural unemployment through most of the previous two decades. Odds are it'll stay near that higher percentage for years, long after the economy is operating at full steam.
That's a bum deal on two scores. Having a larger share of the workforce unable to find jobs at any given time keeps pressure on government to spend more on the social safety net -- not just jobless benefits but also Medicaid, food stamps and more. And more long-term unemployed means millions of shoppers staying away from malls, auto dealerships, restaurants and other businesses.
The outlook isn't good. Almost one-third of today's jobless have been out of work for more than one year. Even though the economy is improving, job creation remains sluggish. It will be several months before employers can be counted on to consistently add 130,000 net new jobs a month, and that will only match growth of the labor force from immigrants and young folks just starting out. To bring the unemployment rate down will take sustained net job growth of much more than that.
Why are there so many long-term unemployed this time around? First and foremost, it's because this recession threw a whopping 8.4 million people out of work -- compared with 2.9 million in the early 1980s. In addition, hiring in this recovery has been slower than in all other postwar economic recoveries.
It's also possible that extending unemployment benefits beyond the standard 26 weeks -- as Congress has done several times -- discourages people from trying to find work. Critics of lengthier benefit periods cite the national average of 90 weeks of benefits in the current recession and recovery versus an average of 55 weeks in 1983. But Federal Reserve economists say that even without the extended benefits, the number of long-term unemployed would total at least 3 million, still a record.
-
Use An iPhone? You May Be Hearing From A Class-Action Lawsuit Group
A handful of suits against the iPhone maker seek to crack down on everything from app store purchases to messaging.
By Keerthi Vedantam Published
-
Capital One/Discover: What's In Their Wallet For You?
Push back on Capital One's planned merger with Discover is growing with one group of consumer advocates calling for a public hearing.
By Keerthi Vedantam Published
-
The Robots Are Coming... But Not For a While
The Kiplinger Letter There’s excitement in the tech sector over the potential of humanoid robots, but widespread adoption is likely to be years away.
By John Miley Published
-
Farmers Face Another Tough Year As Costs Continue to Climb: The Kiplinger Letter
The Kiplinger Letter Farm income is expected to decline for a second year, while costs continue to up-end farm profitability.
By Matthew Housiaux Published
-
H-1B Work Visa Rules Get a Revamp
The Kiplinger Letter H-1B visas allow employers to hire high-skilled foreign workers. Regulators have finalized new rules for this visa program following last fall's proposal.
By Matthew Housiaux Published
-
Woes Continue for Banking Sector: The Kiplinger Letter
The Kiplinger Letter Regional bank stocks were hammered recently after news of New York Community Bank’s big fourth-quarter loss.
By Rodrigo Sermeño Published
-
Are College Athletes Employees of Their Schools?: The Kiplinger Letter
The Kiplinger Letter A recent ruling has ramifications for labor relations and the unionization of student athletes.
By Sean Lengell Published
-
Salton Sea Clean Energy and Lithium Project Gets Approval: The Kiplinger Letter
The Kiplinger Letter California's Salton Sea is due to see the construction of a new lithium extraction and geothermal clean energy power plant.
By Matthew Housiaux Published
-
More Woes for Anheuser-Busch as a Strike Looms: The Kiplinger Letter
The Kiplinger Letter Drinkers of Anheuser-Busch beers may want to stock up soon. A looming strike threatens to shutter its U.S. breweries later this month.
By Sean Lengell Published
-
The Auto Industry Outlook for 2024
The Kiplinger Letter Here's what to expect in the auto industry this year. If you’re in the market for a car it won’t be quite as daunting as it was during the pandemic and after.
By David Payne Published