Thursday, February 9, 2012

America's Long-Term Unemployed: It is Different This Time

While February's unemployment data had both the markets and market pundits singing the economic recovery song, other employment statistics show that joblessness in America is not a thing of the past, in fact, these statistics show that long-term joblessness has reached levels not seen either during a recession or during the post-recession recovery since the 1940s.

Here is a six-decade long graph from the St. Louis Federal Reserve Bank (FRED) showing where the problem lies:

Here is a close-up showing the same data for the past 10 years:

These graphs show the number (in millions) of civilians who have been out of work for 27 weeks or longer with the first graph showing the data between January 1948 and January 2012 and the second graph showing the data between January 2002 and January 2012.  From the first graph, one can quite quickly see that the number of long-term unemployed has skyrocketed past the level experienced during and after any recent recession.  This is particularly evident when looking at data from the past 10 years.  The number of long-term unemployed reached a decade-long low of 1.078 million in October of 2006.  By August of 2008, the number had risen to 1.864 million and ramped up very rapidly to hit a peak of 6.73 million by April 2010 (according to the NBER, the Great Recession began in December 2007 and ended in June 2009).  The number of long-term unemployed has since fallen by only 18 percent over a 21 month period to 5.519 million, despite the fact that the economy is nearly three years past the end of the Great Recession.  This level is well above the number of long-term unemployed throughout the past 10 years and still sits at a level that is 2.5 times higher than the level it peaked at after the recession of 2001 when it reached 2.1 million.  In most of the previous 20th century recessions, the level of long-term unemployed dropped to half of the peak within 18 to 24 months, for example, the recession in the early 1980's saw long-term unemployment peak in May and June of 1983; this had fallen to less than 50 percent of its peak by January of 1985.  The fall in long-term unemployment after the recession of the early 1990's was more drawn out, however, within 24 months of its peak in October 1992, it had dropped by 32 percent, a far better performance than what we are seeing in the post-Great Recession “recovery”.

Here is an interesting graph from a publication entitled "Five Long-Term Unemployment Questions" by the Pew Charitable Trusts:

Please note that Pew's analysis defines long-term unemployed Americans as those who have been unemployed for more than 52 weeks.  Pew's analysis of the data from the fourth quarter of 2011 reveals that 4 million jobless workers were without work for more than one year, representing 31.3 percent of the U-3 unemployed and 2.6 percent of the total workforce.  While the graph shows that the number of long-term unemployed has dropped from its peaks (as we saw in the FRED graphs above), the number of long-term unemployed (in dark green) is much higher than any previous recession going all the way back to World War II.  Oddly enough, while older workers were less likely to experience joblessness, they are most likely to have been jobless for a year or more as shown here:

While the U-3 headline jobless numbers are finally showing glimmers of life, the data in this posting shows that the employment recovery is hardly breathtaking.  What is particularly concerning is that the U.S. could well be entering the next recession with a record-breaking level of long-term unemployed.  While America's politicians squabble like school children over their partisan viewpoints on the debt and deficit, "Rome" is burning and "Nero" is, at best, paying lip service to the employment problems facing millions of American families.  I only wish that I knew how to solve the problem.


  1. The percentage graph seems much more useful as the first two don't account for population growth and therefore exaggerate the issue. Not that the issue isn't extreme, but exaggeration isn't helpful for real analysis.

    However, even the percentage graph is missing at least one key factor that comes to mind: the age of the workforce. The "BY AGE" graph starts to capture a display bit of this information... It just occurred to me to check if the linked PDF had what I want, and at first glance it appears to have one additional age-related graph, but that only compares the ages of the unemployed with the ages of the workforce.

    While I don't expect it to account for the entirety of the increase in long-term unemployed compared with previous post-recession periods, I would like to see how much different it is.

    To be clear, I'm suggesting that the high number of Baby Boomers contribute to the higher-than-typical portion of long-term unemployed.

  2. The big picture here seems simple. For the last 8-10 years, most individuals, corporations and governments ("group"-economy as a whole-GDP)have been living beyond their means and borrowing money to do so. During this period, the "group" was spending more money than they were generating and as a result the economies grew at a higher rate than if they had been living within their means. It reached a point where the debt burden became unmanageable.

    The general solution being offered by governments/central banks is cheap and plentiful money so the "group" (now with a focus on consumers) will borrow MORE and thereby enable the economies grow more so they can repay the excessive debt burden that already exists!

    Expecting that debt burdened "consumers" within an economy can continue to increase "spending" so the economy can "expand" more and reduce relative debt burdens, just doesn't make any sense!

    Economies are going to have to "shrink" back to levels of production that are compatible with the "groups"/consumers ability to consume. In general, increasing "production" (and employment etc) would not seem to be in the cards for a while.

    This will be a painful correction that cannot be avoided by "growing" an economy with artificially cheap debt and printing money - an action that will inevitably result in inflation without solving the core problem - excessive debt.

    People, corporations and governments do not take well to reducing their standard of living/profits/activities. Hopefully this "shrinking" can be accomplished without too much civil unrest.

  3. Ren, I agree with the population growth issue, particularly as one goes back several decades. That's why I think that looking at the past decade is key and that's why I included a graph showing just that.

    We have rarely seen such a slow "jobs recovery" no matter what the size of the population and/or workforce.

  4. We haven't seen such a slow recovery because we haven't seen a bubble this big in a long time. It's really a perfect storm. We lasted this long for a while on our service and retail industry which, in turn, has been kept up by a debt-fueled consumption.

    Here's a scary thought: given our current saving rate, the current levels of consumption is pretty much where they are supposed to be at best and might be still slightly too high (again, remember, the higher levels were debt-fueled).

    We have no sustainable industry, no exports, and a ton of people with the perfect skillset for an economy that no longer exists and needs to completely remodel itself to take in the new technology (here's something interesting to research: how difficult was it for the US to adapt to electricity. I believe we're just starting to see a similar shift now with the internet) and a VERY large piece of population that not only demands high pay employment (due to high experience) but also higher support services due to age.

    Even if we didn't make the mistakes we did, this mess was coming (the mistakes just turned an asteroid into a planet). New normal? More like 'start from scratch'. It's why all of the 'solutions' just compound the problem, since you really can't speed things up.

    Given that, I believe the solution is to first get over the 'high life' from the 80s-2006. Trying to get back there now just means more issues.

    Next will be to try to balance the situation without civil unrest and while realizing that this will be painful for a long, long time. I like the conservative ideals of a safety net based on training programs. Job programs, even the 'hated' temporary government jobs, can keep up the job experience of many people, both to avoid 'employment gaps' and to let others acquire skills they wouldn't get otherwise.

    Besides, just being able to say 'I have a job' even when you know it's temporary feels a lot better than job hunting for 6 months.

    Encourage saving. Cut down on expenses. Taxes won't make a difference here (it needs an overhaul but that's for OTHER reasons). Look for new industries and encourage them, though know nothing will come for about a decade.

    Then hunker down, try not to destroy yourselves, and slowly build ourselves up from scratch.

  5. People do not give up what they previously had very easily. The best that we can hope for is that individual debt is reduced and hope that the drop inconsumption does not push us over the cliff. In a similar way, profits at previously sustainable way are not realistic. But business is not going to easily adjust to more modest profits, bonuses, dividents, etc. This will push the stock market lower. Will that push us over the cliff. Or does the crumbling infrastructure get worse without investment? I hope you get my drift.

  6. For a clue as to how our country's future will be, look to Japan. An aging and shrinking population, a high savings rate and aversion to increasing personal consumption together with large government deficits puts them in a slow downward path as far as GDP is concerned. The US is somewhat more fortunate in that we still have some population growth and enormous sources of new energy to fuel our economy. The debt hangover from the last decade and the enormous costs of retiring baby boomers are still going to hold the economy back for several years. Finally, our educational system is not producing enough graduates with the right skill sets. Politicians with the courage to attack these issues cannot get elected since the electorate is not ready to swallow some tough medicine.