US feels pain of long-term joblessness

By Sarah O’Connor in Washington
Published: November 23 2009 22:11

The US labour market used to be whizzy. People would chop and change jobs at a furious pace, but not many stayed out of work for long. If you wanted to see countries sagging under the weight of long-term joblessness, you had to cross the Atlantic.

On the eve of the global downturn in 2007, 10 per cent of the US unemployed had been out of work for a year or more, compared with 25 per cent in the UK, 40 per cent in France and 57 per cent in Germany.

Times have changed. The sheer force of the recession has driven 8.2m out of work in the US and pushed the unemployment rate to the highest since 1983.

Long-term unemployment is already much worse than in the 1980s: in October, 5.5m – almost 40 per cent of the US jobless – had been so for at least six months, the highest on record. Twenty per cent had been unemployed for a year or more, compared with a fairly static 25 per cent in the UK.

This could have lasting reverberations both for America’s people and its economy.

“It’s a killer disease,” says Thomas Cottle at Boston University, author of Hardest Times: The Trauma of Long-Term Unemployment. “People are going to be damaged and may not recover in their lifetime.”

The longer people are jobless, the more their skills and confidence decline and the less appealing they become to employers. “There’s a lot of research showing lengthy unemployment essentially erodes the productive capacity of the economy,” says Timothy Bartik, a labour market economist at the W.E. Upjohn Institute.

The Congressional Budget Office released a report in 2007 into long-term joblessness, which was at the time something of a niche topic.

After an unemployment spell of six months or more, people’s new jobs paid an average 20 per cent less than their previous ones, it found. More worryingly, the CBO discovered that about one in four of the long-term unemployed dropped out of the labour force ­altogether.

The US is so unused to this phenomenon that unemployment insurance only lasts for 26 weeks.

Facing the prospect of millions of people suddenly running out of benefits, lawmakers have had to patch up the system with a series of extensions, the latest of which was signed into law this month. In the hardest-hit states, the long-term unemployed can now claim for as much as 99 weeks. But even then, according to the non-profit National Employment Law Project, more than 1m people may exhaust their benefits at the turn of the year.

Lawmakers are also mulling special job-creation policies such as tax credits to persuade businesses to hire again. Professor Bartik thinks they should consider a special programme to help groups suffering unemployment for the longest periods.

Before the recession, that group was disproportionately made up of the least educated. But the “new” long-term unemployed are a more diverse bunch. A third of unemployed high-school dropouts have been out of work for six months or more, but among college graduates the figure is 37 per cent.

At least misery now has company. “More and more people are saying, I am part of a tremendous current of people being shoved down the river here, and they’re not taking it so personally,” says Prof Cottle.

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