The long gray unemployment line

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Article Highlights

  • The longer you're unemployed, the longer you'll stay unemployed

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  • Fixing the long-term #unemployment problem will be #Obama's toughest task

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  • Reemploying older workers take bigger pay cuts than their 30 to 40 year old counterparts #employment

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Since World War II, high unemployment has been extraordinarily rare in the United States. Between 1948 and 1982, the unemployment rate never climbed above 9 percent. The deep recession of 1982 pushed the rate as high as 10.8 percent, but by the end of 1983, Reaganomics had pushed it back below 9.

The unemployment rate was only 6.8 percent the month Barack Obama was elected president, but it climbed sharply as the aftereffects of the crash played out and Obama's policies were put into effect. It has stayed high ever since, with the July 2011 number stubbornly holding on at 9.1 percent. It is remarkable how terrible the Obama record is in historical perspective. Looking back to 1948, more than half of all months with an unemployment rate above 9 percent have passed on Obama's watch.

"The long-term unemployed are much grayer than unemployed workers in general." -- Kevin Hassett

If the unemployment rate is high for a long time, there will be lots of workers who are unemployed for longer than usual. This fact is especially troubling because the longer workers remain unemployed, the harder it becomes for them to reenter the workforce. If a job candidate shows up in your office and hasn't had a job in two years, you will be reluctant to hire him.

New research by Richard W. Johnson and Janice S. Park of the Urban Institute provides a chilling glimpse of the challenge. Johnson and Park have discovered a nuance in the data that suggests that reversing current trends will be especially difficult: While younger workers are much more likely to be fired, they get rehired faster. That means that the long-term unemployed are much grayer than unemployed workers in general.

The nearby chart, taken from the Urban Institute study, reveals how striking this trend has been. It documents the cumulative probability of reemployment by age group for the years 2008 and 2009. About 10 percent of young unemployed people (ages 18?24) found a new job within four months, about 40 percent within a year, and about 65 percent within 20 months. This contrasts sharply with the experience of more senior workers. Among those aged 62 and above, barely any found jobs in the first four months, and only about 30 percent found jobs by the 20th month. The outlook for those between 50 and 61 was only a little better. Putting Americans back to work will require finding jobs for the long-term unemployed, but doing this for older workers can be quite a bit more difficult. Older workers have a shorter remaining career, which makes investments in job training harder to justify, and they often find themselves in situations where their existing skills are simply wasted. The typical man over 62 who is reemployed, the authors report, had to take a 36 percent pay cut. The pay cut for workers in their 30s and 40s was only 4 percent. Older workers may also have deeper roots in specific communities, making them less likely to move to a part of the country (such as Texas) that is growing faster.

The long-term unemployment problem is partly Washington's creation, since the extension of unemployment-insurance benefits to 99 weeks effectively subsidized the creation of a structural problem. Fixing it will be the toughest job our next president faces.

Kevin A. Hassett is a senior fellow and director of economic policy studies at AEI

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About the Author

 

Kevin A.
Hassett
  • Kevin A. Hassett is the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (AEI). He is also a resident scholar and AEI's director of economic policy studies.



    Before joining AEI, Hassett was a senior economist at the Board of Governors of the Federal Reserve System and an associate professor of economics and finance at Columbia (University) Business School. He served as a policy consultant to the US Department of the Treasury during the George H. W. Bush and Bill Clinton administrations.

    Hassett has also been an economic adviser to presidential candidates since 2000, when he became the chief economic adviser to Senator John McCain during that year's presidential primaries. He served as an economic adviser to the George W. Bush 2004 presidential campaign, a senior economic adviser to the McCain 2008 presidential campaign, and an economic adviser to the Mitt Romney 2012 presidential campaign.

    Hassett is the author or editor of many books, among them "Rethinking Competitiveness" (2012), "Toward Fundamental Tax Reform" (2005), "Bubbleology: The New Science of Stock Market Winners and Losers" (2002), and "Inequality and Tax Policy" (2001). He is also a columnist for National Review and has written for Bloomberg.

    Hassett frequently appears on Bloomberg radio and TV, CNBC, CNN, Fox News Channel, NPR, and "PBS NewsHour," among others. He is also often quoted by, and his opinion pieces have been published in, the Los Angeles Times, The New York Times, The Wall Street Journal, and The Washington Post.

    Hassett has a Ph.D. in economics from the University of Pennsylvania and a B.A. in economics from Swarthmore College.

  • Phone: 202-862-7157
    Email: khassett@aei.org
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    Phone: 202-862-5862
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