Is Long-Term Unemployment THE Problem

Since the late 1970’s the number of US workers unemployed for 27 weeks or more has generally lingered between one and two million, even during recessions. The ’08-’09 recession and recovery period were different: long-term unemployment exploded to a peak of 6.7 million in April of 2010. It lingered above six million for 17 months before falling in October 2011. Since then the level has declined steadily, but very slowly.

Unemployed 27+ Weeks 1977 to 2013 -- BLS data

Unemployed 27+ Weeks 1977 to 2013 — BLS data

There’s a tendency with noisy data to look for linear trends, but I don’t think it’s the right way to analyze long term unemployment. To begin, looking for a job is a job in itself, and when a person is locked out from formal job–>paycheck ways of earning a living, he or she has to find other ways. That means getting public assistance, asking help from friends, family, and community organizations, doing side work or day labor for cash payments, etc. These all take mucho time, and generally have a very low return. For this reason, I assert that being long-term unemployed can be thought of as an occupation in itself. The corollary is that long-term unemployed folks returning to work is a form of occupational mobility.

In addition, if you’re employed there’s a pretty good chance you know very few (if any) long-term unemployed folks…..Unless you’re very active in your church, community, and social networks like LinkedIn, of course. Even then, you’re probably locked out of regular interaction by circumstance. This isn’t a value judgment–it’s just the nature of human interactions. Long-term unemployed people tend to network with others in the same circumstance and share information. Connections tend to play a gigantic role in finding formal work in a slack labor market, but reducing the pool of the long-term unemployed leads to disconnection for those remaining in it. While it would be nice to think that the long-term unemployed would be able to pull their unemployed friends along, this just isn’t the case. Instead, the rate of job finding in the remaining pool slows as information sharing is reduced.

When examining the long-term unemployment trend post-recession, there are two distinct pieces–the relative steady state beginning in April 2010 and the decline beginning in October 2011. Because of the dynamics I described above I decided the best way to analyze + predict from the measured data was with a deterministic trend; as a first-order ODE specifically. I took the measured data beginning in September 2011 and worked out a long-term predictive trend based on it:

Long Term Unemployment With Trend

Long Term Unemployment With Trend

The data smooths out to a disturbing trend where an average of 1.715% of the pool of long-term unemployed individuals find work or exit the labor force in any given month. If we assume the recovery continues as it has, the number of people long-term unemployed will decline to about 2.07 million when the current US President leaves office–a number higher the previous ceiling of 2 million and way above what’s been normal during expansions. In my opinion, this shifts the long-term unemployment problem from being just an economic problem to being a political problem. It will be very troublesome for the next Democratic Presidential nominee to have to defend this kind of economic record, and will be an issue the Republican nominee can seize upon.

Of course, “the recovery will continue as it has” is a big assumption. I’ve run the trend line out longer than the data I’m using, which is pretty gutsy to do. However, data from prior expansions show this is a reasonable expectation, and the trend seems to have reached a steady, if undesirable, equilibrium. Anything can happen in the next couple of years to grow the job market, but if history is an indicator, just growing the job market won’t be enough. What will really be needed are more entry level jobs in every industry. As I mentioned previously, entry level jobs have been in short supply, and are simply needed in general. Can the long term unemployed–with all the stigma that has been unfairly attached to them–be expected to compete successfully with the already working? I don’t think they can. In my opinion this is an economic problem that requires a political solution–one that could come in many forms–from tax credits, to paid placement, to direct hiring. If the current administration doesn’t successfully address it, the next one will have to.

The finest GagVid I’ve seen this week….Don’t worry, it’s clean:


About Cameron Hoppe

Posted on November 24, 2013, in Economics, Jobs, Ordinary Differential Equations, Recession, Unemployment and tagged , , , , . Bookmark the permalink. Leave a comment.

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