Behind the Numbers: Slow Job Growth is a Problem; Long-term Unemployment is a Crisis

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Damian Dovarganes / AP

Job seekers gather for employment opportunities at the 11th annual Skid Row Career Fair at the Los Angeles Mission on Thursday, May 31, 2012 in Los Angeles.

Any way you slice it, Friday’s jobs numbers were a huge disappointment. Forecasters were expecting 150,000 jobs added, and even that figure would have represented mediocre job growth. But the actual number of 67,000 new jobs isn’t even enough to keep up with population growth. Combine that with the downward revisions of the March and April numbers, and what we have on our hands is a sputtering recovery.

But perhaps the most depressing aspect of last week’s report – and the recovery in general – is the huge number of long-term unemployed workers. Defined by the Bureau of Labor Statistics, someone is considered “long-term” unemployed if they have been jobless for 27 weeks or longer. According to Friday’s Employment Situation Report, the total number of long-term unemployed is at a staggering 5.4 million Americans, or 42.8% of the total unemployed.

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The effects of long-term unemployment are as numerous as they are pernicious. Dean Baker and Kevin Hasset, respectively of the progressive Center for Economic Policy and the conservative American Enterprise Institute, outlined many of these repercussions in a recent New York Times article. According to Baker and Hasset, problems plaguing the long-term unemployed include higher incidents of disease, suicide and lower future earnings for those workers and their children. Baker and Hasset write:

“The result is nothing short of a national emergency. Millions of workers have been disconnected from the work force, and possibly even from society. If they are not reconnected, the costs to them and to society will be grim.”

And long-term unemployment is a problem that compounds itself. The longer someone goes without working, the more his skills deteriorate and the less attractive he is to employers. So even if the U.S. economy were able to avoid the landmines of the European debt crisis plus slower growth in China and India, and regain the roughly 200,000 jobs a month pace it had in late 2011, many of these long-term unemployed will face permanent and devastating consequences from the Great Recession.

Is there any plan to deal with this crisis? Baker and Hasset rue the fact that the United States didn’t follow Germany’s lead in the wake of the financial panic of 2008. Germany implemented work-share programs that encouraged firms to reduce hours worked rather than fire people, and subsidized those workers wages in lieu of unemployment benefits. Congress recently took steps to adopt this model, but it may be to late. According to Baker and Hasset:

“Thankfully, there is some effort to learn from this model. The recent bill that extended the payroll tax cut included a provision that covered the cost of work-sharing programs in the 23 states that already had them as part of their unemployment insurance systems, and it helped other states start such programs. This should slow job destruction in those states, which will improve chances for all workers seeking employment. From now on, the first line of defense during a recession should be to expand work sharing rather than simply extend unemployment benefits.

But these changes come late, and we must get much better at sending a lifeline to those who are hardest to reconnect.”

(MORE: America’s Slow Economic Recovery)

Do policy makers know what these lifelines should look like? Well, sort of, but most of the proposed solutions from both the left and the right are bereft of new ideas. Liberals have used statistics about the long-term unemployed to stress the immediacy of our economic problems and the dire need for aggressive government action. They warn that prolonged high rates of long-term unemployment have negative long-run effects on the economy. If too many workers’ skills atrophy, they will be doomed to become less-productive members of society and drag on the economy as a whole. This is what Larry Summers and Berkeley economist J. Bradford Delong argued in a March paper called “Fiscal Policy in a Depressed Economy.” Their solution? Aggressive borrowing and spending at the Federal level to prop up demand.

Conservatives, predictably, disagree. Generally, those on the right regard our employment problem as structural, and think that no amount of government spending to boost demand will fix our labor market. Workers, they argue, don’t have the skills that modern firms need. What’s more, they say, much of the growth of the past generation was goosed by government spending, which masked underlying flaws in the economy. This is the argument that University of Chicago economist Raghuram Rajan puts forward in the recent edition of Foreign Affairs:

“Rather than attempting to return to their artificially inflated GDP numbers from before the crisis, governments need to address the underlying flaws in their economies. In the United States, that means educating or retraining the workers who are falling behind, encouraging entrepreneurship and innovation, and harnessing the power of the financial sector to do good while preventing it from going off track.”

So what does this all mean for those workers who have been out of work six months or more? Unfortunately, not much. Gridlock in Washington will surely smother any bold, cohesive plan to help these people rebuild their skills and find work. And Congress has already begun to scale back long-term unemployment benefits. According to the National Employment Law Center, these changes will terminate unemployment benefits for 500,000 of the long-term unemployed by the end of August. Conservatives hope that removing this section of the safety net will push people back into the workforce, while liberals fear that it will only lead to suffering, poverty and even less demand in the economy. There is probably truth to both arguments, but in either case there are surely hard times ahead for the long-term unemployed.

MORE: Is U.S. Manufacturing Really Back?

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