3 Common Misconceptions About Long-Term Unemployment

  Google+  Twitter | + More Articles
  • Like on Facebook
  • Share on Google+
  • Share on LinkedIn
Source: Thinkstock

Source: Thinkstock

Defined by the Bureau of Labor Statistics as labor force participants who have been out of work for twenty-seven weeks (six months) or more, long-term unemployment is both a symptom and a sickness. As a symptom, it indicates economic anemia caused by weak demand and structural unemployment, which usually comes in the wake of an economic shock like the financial crisis. As a sickness, it can ruin the career or lives of those affected, destroying not just savings but also reducing a person’s likelihood of being hired and reducing earnings potential for many years.

Because of this, excessive long-term unemployment is one of those outrageous economic problems that demands action. The longer the long-term unemployment rate remains high, the more damage prolonged joblessness inflicts on individuals, families, and the economy at large. And if you haven’t caught the memo yet, the United States is sick. In July 2014, 3.2 million Americans accounting for 32.9 percent of the total unemployed had been looking for work without success for more than six months. Granted, this is down dramatically from post-crisis highs in 2010, but it is still well above even the highest peaks previously recorded.

In the U.S., we have typically tried to treat long-term unemployment with fiscal policy, but in the wake of the financial crisis, the medicine hasn’t been very effective. Unemployment insurance is the first prescription, but it is a stopgap solution designed to keep people on their feet while they find new work. Even dramatically extending unemployment insurance benefits, which was done in 2009, only treats the symptoms of unemployment, not the causes.

The government has invested in education and jobs training programs in the hopes of narrowing any skills gaps in the labor force, but these programs alone are insufficient, and work more like a therapy than a cure. Policies, fiscal or otherwise, designed to address the problem have been suggested by organizations like the Congressional Budget Office, but there is little agreement on the feasibility of implementation, let alone any sort of political alignment. Payroll tax cuts meant to stimulate hiring means spending cuts somewhere else, while increased spending on job training programs means finding free cash flow in a government already running enormous deficits.

Part of the problem is that the causes of long-term unemployment are complicated and often structural and systemic, which makes understanding the problem and designing solutions difficult. And since the nature of most viable solutions involve the exercise of fiscal policy, finding the political willpower to implement them can seem impossible, especially with the current Congress. Agitating the issue are abundant misconceptions about what the problem actually is and the efficacy of current and proposed treatments. So beginning with the scope of the problem, it makes sense to unpack the issue and try to understand what’s going on, why it’s happening, and how we can address it.

More Articles About:

To contact the reporter on this story: staff.writers@wallstcheatsheet.com To contact the editor responsible for this story: editors@wallstcheatsheet.com

Yahoo Finance, Harvard Business Review, Market Watch, The Wall St. Journal, Financial Times, CNN Money, Fox Business