Long-term Unemployment, Its Causes, and Effects
Why 1.3 Million Can't Find Work Even After Looking for 6 Months
Long-term unemployment is when workers are jobless for 27 weeks or more. To be counted as such by the Bureau of Labor Statistics, they must have actively sought employment during the previous four weeks. That means the number of long-term unemployed is probably under-counted. Most people become discouraged and drop out of the labor force after six months. They are not included in the labor force participation rate.
Long-term Unemployment Statistics
In August 2018, there were 1.332 million long-term unemployed individuals. That makes 21.4 percent of the unemployed who have been looking for work for six months or more.
It's a significant increase over May's rate of 19.6 percent. The May rate was the first month that the percentage dropped below 20 percent since the 2008 financial crisis. But August's rate is still better than the record high of 46 percent in the second quarter of 2010. The number of unemployed first dropped below 2 million in May 2015.
The rate is also better than the darkest days of the 1981 recession. At that point, 26 percent of the unemployed were out of work for more than six months. Total unemployment then was also worse than it is today. The overall unemployment rate was 10.8 percent. Although the Great Recession initially created a higher percentage of long-term unemployment, it has subsided.
The two causes of long-term unemployment are cyclical unemployment and structural unemployment. Cyclical unemployment itself is often caused by a recession. Structural unemployment occurs when workers' skills no longer meet the needs of the job market.
Long-term cyclical and structural unemployment feed off of each other. A recession causes a massive rise in cyclical unemployment. Those who can't find jobs become long-term unemployed. If out of work long enough, their skills become outdated. In time, this contributes to structural unemployment. They have less money to spend, resulting in reduced consumer demand. It further slows economic growth, leading to more cyclical unemployment.
Many say that there are three other reasons for long-term unemployment: welfare, unemployment benefits, and unions. Government assistance programs require the recipients to look for work. It inflates unemployment statistics by 0.5 percent to 0.8 percent because not all would be actively looking. Those people really shouldn't be considered part of the labor force. Benefits may also encourage people to hold out for better-paying jobs, further extending unemployment.
Unionization creates classical unemployment by forcing companies to offer higher wages than they otherwise would. These companies must lay off workers to maintain budget and profit goals. These workers may only have skills suited for a particular industry and may be unwilling to take lower wage jobs. That can result in structural, and ultimately long-term, unemployment.
Only 10 percent of the long-term unemployed find a job each month, according to a report by the San Francisco Federal Reserve. It is worse than the 30 percent per month of the short-term unemployed who are successful.
The situation is not hopeless though. The report also found that half of the long-term unemployed find a job in six months, and 75 percent do so within a year. Even those who hadn’t found a job in 18 months find something in the end if they keep looking. The San Francisco Fed found that the chances of finding a job didn't decline even though they had been unemployed for so long.
Being unemployed for six months to a year will almost always strain personal finances. A Pew Research study found that recession affected the long-term unemployed worse than others in the areas of personal relationships, career plans, and self-confidence. In particular, the long-term unemployed reported the following:
- More than half (56 percent) saw their income decline, compared to 42 percent of the short-term unemployed and 26 percent of those who kept their job.
- Almost half (46 percent) experienced strained family relations compared to 39 percent of those who weren't unemployed as long. 43 percent lost close friendships.
- Almost one in four (38 percent) lost self-respect, and 24 percent sought professional help for depression compared with 29 percent and 10 percent of the short-term unemployed.
- The recession has had a "big impact" on their ability to achieve career goals for 43 percent of them compared to 28 percent of their short-term peers.
- More than 70 percent say they changed careers. Almost a third (29 percent) became underemployed with lower pay and benefits than their previous job. It’s no surprise that they became very pessimistic about their chances of finding a good job. Only 16 percent of the short-term unemployed were worse off.
A a Swedish study found that the long-term unemployed began losing their ability to read. On average, a person who had been unemployed for a year dropped 5 percent on reading comprehension test scores.
How Long-term Unemployment Benefits Extensions Help
Federal unemployment benefits extensions assisted the long-term unemployed in their job search efforts. Congress approved the extensions in the 2009 American Recovery and Reinvestment Act. They were re-authorized every year till 2013.
The benefits provided the long-term unemployed with up to 99 weeks of unemployment checks. It helped support them until they could find decent jobs. Without the extensions, they would have had to take any job they could, leading to underemployment. This might preclude them from ever catching up as their skills became more outdated.
Unemployment benefits only help those who were laid off, though. Some employers fire workers for cause or ask workers to resign in return for a severance package so that they don't have to pay benefits. Workers who quit, part-time workers, the self-employed and students or mothers just entering the workforce aren't eligible for benefits.
Also, not all of those eligible for benefits received the entire 99 weeks of unemployment checks. They had to live in a state that meets a minimum unemployment rate.
How to Calculate the Long-term Unemployment Rate
The long-term unemployment rate is easy to calculate because the BLS breaks down the statistics each month in the Employment Situation Summary. The number of people who have been unemployed for 27 weeks or more is in Table A-12. It also calculates the percentage they make up of the total unemployed. This table gives you the data for the previous three months, seasonally adjusted. It also allows you to compare the last two months and year-over-year, not seasonally adjusted.