The Long-term Unemployed May Finally Get a Break
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The Fiscal Times
July 22, 2014

It’s been a rough year for the long-term jobless, with Congress refusing to renew an extension of federal unemployment benefits and some states slashing already-meager safety net programs, but a new study by a pair of Federal Reserve Board economists offers some hope for the future.

In a paper issued this week, Tomaz Cajner and David Ratner find that the percentage of the unemployed who have been jobless for more than 27 weeks – the definition of “long-term” unemployment – has been dropping sharply in recent months, and that there is strong evidence to suggest that it is because they are finding jobs rather than simply dropping out of the labor force altogether.

Related: Wages Rise – Skilled Workers Now Easier to Find

The news is good for the jobless, and it’s also good for Cajner and Ratner’s boss, Federal Reserve Board Chair Janet Yellen, who has staked out a public position claiming that as the economy continues to recover, the long-term jobless and even those who have left the workforce in discouragement, would begin to find work again.

Yellen’s position is in stark opposition to a competing theory backed by prominent Princeton University economist Alan Krueger and others, which holds that the long-term jobless are highly marginalized. In Krueger’s analysis, the long-term jobless have been so alienated from the workforce, for example, that even their presence in large numbers is not enough to drive down wages.

Further support for Yellen’s theory appeared yesterday in the National Association for Business Economics Business Conditions survey. NABE found that fewer companies are having trouble attracting skilled workers today than did this time last year – a counterintuitive finding, given that the economy has added 1.2 million jobs in the last 12 months and skilled workers were, presumably, among the most attractive candidates for hire. A possible explanation is that, as per Yellen’s prediction, discouraged workers are rejoining the labor force.

In their paper, Cajner and Ratner point out that in terms of creating the large number of long-term jobless, the Great Recession was much worse than previous economic downturns. It peaked at 45 percent of the jobless, whereas in the 1982 recession, it topped out at 26 percent.

Related: Don’t Ignore Janet Yellen’s Stock Market Warnings

“In many ways the fight against unemployment during the recent recovery has been mainly one of bringing down the long-term unemployment rate,” they write. And finally, that’s starting to happen.

“Since December 2013,” according to Cajner and Ratner, “the long-term unemployment rate dropped 0.5 percentage point, thereby accounting for almost the entire decline in the aggregate unemployment rate. At the same time, the aggregate labor force participation rate remained unchanged, on net, at 62.8 percent and the aggregate employment-population ratio rose 0.4 percentage point. These encouraging developments appear consistent with rising employment of those previously reported as long-term unemployed.”

They were also upbeat about the trend’s staying power, noting, among other things, that “job-finding rates of the long-term unemployed have edged up recently,” and that their ability to retain jobs over time has also been improving.

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A longtime reporter on the intersection of the federal government and the private sector, Rob Garver is National Correspondent, based in Washington, D.C. He has written for ProPublica, The New York Times and other publications.