Economists: Long-Term Joblessness is National Emergency

Seemingly intractable long-term unemployment has become a national emergency that requires new and creative steps if it’s to be reversed before it does permanent damage, several high-profile economists warned Congress on Wednesday.

Testifying before the Joint Economic Committee, the economists, who’ve served Democratic and Republican presidents, said the elevated percentage of long-term unemployed people among those counted as jobless underscored deeper problems in the labor market.

The labor force participation rate is the lowest in 35 years, and the figure of about 11.7 million Americans officially out of work doesn’t capture the 102 million working-age Americans without jobs – about 41.5 percent of all potentially available workers, said Keith Hall, who until last year was the commissioner of the Bureau of Labor Statistics.

“The long-term unemployment rate underestimates the number of long-term jobless,” said Hall, who’s now a researcher at George Mason University’s Mercatus Center, adding that the long-term unemployed are “helping to hold back economic growth.”

Because so many workers have disengaged completely from the job market, Hall said, the unemployment rate has fallen without significantly reducing joblessness.

Officially, workers out of a job for six months or longer numbered 4.6 million in March, or just below 40 percent of the 11.7 million Americans counted as unemployed. More than 1 in 4 of them have been out of work for a year or longer.

The average unemployed person who eventually left the workforce in 2007 spent about nine weeks looking for a job before giving up, Hall testified. That period had grown to more than 21 weeks in 2011, just six weeks short of meeting the criteria for being considered long-term unemployed. By dropping out of the workforce, these former workers are making the participation rate shrink and are making the long-term unemployment numbers look much better than they are, he said.

To be considered unemployed, a person must have had no job of any sort for six months, want to work, be readily available, and send out resumes and contact employers or employment agencies.

Workers who land part-time or temporary jobs – 7.6 million of them in March – also skew the long-term unemployment numbers, making them appear better than they are, Hall said.

An economic adviser to the last three Republican presidential candidates, Kevin Hassett, labeled the stubbornly high rates of long-term unemployment a national emergency.

Hassett, who’s now a researcher at the free-market research center the American Enterprise Institute, cited research showing a drop of at least 40 percent in per capita income for people who’ve gone six months or longer without employment. The longer a worker is jobless, the greater the chance of divorce, family strife, suicide and a host of other ills that do permanent damage to children, who’ll become workers themselves someday.

Long-term unemployment also becomes self-fulfilling, as workers lose essential skills and employers carry negative perceptions of applicants who’ve been jobless for long periods, Hassett said.

A skills mismatch explains some of the high long-term unemployment, cautioned Harry Holzer, a former chief economist for the Labor Department who’s a professor at Georgetown University. Some sectors such as healthcare and manufacturing, he said, “do seem to have some difficulty in filling jobs.”

By his estimate, a full percentage point of March’s 7.6 percent unemployment rate is because of structural problems in the labor force that result in a job vacancy rate of 2.8 percent despite large numbers of available workers.

The economists urged more public-works spending, tax credits and subsidies to employers to bolster private-sector employment, all of which would spark more demand and activity in the economy.

Usually identified as a conservative, Hassett urged Minnesota Democratic Sen. Amy Klobuchar, who ran the hearing, to be creative and experiment with Democratic and Republican ideas to test what might work to bring down long-term joblessness.

One idea he strongly supported involves subsidies for “work sharing.” That’s a process in which, say, five workers each take a 20 percent pay cut, or a cut in hours, and none are let go. Rather than having to provide unemployment benefits, the government would provide money to offset that 20 percent pay cut for workers. The incentive for companies is that as the economy improves, they’d already have these skilled workers on their payrolls.