Tags: Economists | Long-term | Unemployed | Matter

Economists: Why the Long-term Unemployed Don't Matter

By    |   Sunday, 23 March 2014 07:40 PM

More economists are arguing that the long-term unemployed don't matter to the economy.

The long-term unemployed exert little inflation pressure even in good times, according to new research by Princeton University economists. Instead, the short-term unemployment rate, rather than overall unemployment, is a better predictor of inflation wage growth.

New York Federal Reserve economists made the same argument in a previous paper.

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The long-term unemployed are frequently jobless again soon after finding a job, the research finds. "Only 11 percent of those who were long-term unemployed in a given month returned to steady, full-time employment a year later," says the paper by Princeton University economists Alan B. Krueger, Judd Cramer and David Cho.

A stronger economy doesn't seem to help. The long-term jobless have trouble finding work wherever they are, even in states with plenty of work. Even in states with the lowest unemployment rates, long-term unemployment grew dramatically during the recession. That, the researchers, suggests long-term unemployment will be a lingering problem even when the job market returns to normal.

They are also less likely to return to the labor force. About one in 10 of the long-term unemployed completely left the labor market within a few months of the survey. Plus, most of them stayed out of the labor market after a year.

When they do return to work they tend to go back to the same industries and occupations they left, often service jobs and blue collar jobs.

"Long-term unemployment has remained a persistent problem post-Great Recession – a somewhat new issue for the U.S., as compared to Europe," the authors write.

The overall unemployment rate remains high because of large number of would-be workers without jobs for more than six months. Although it's declined since the recession, the number long-term unemployed is still well above its average in the last recovery, they state. "Yet, measures of short-term unemployment are close to their average rates in the last recovery."

Some Federal Reserve officials have cited the long-term unemployed as a reason for keeping interest rates low. But the research implies that the long-term jobless may be beyond help.

Although the paper's authors don't take sides in the monetary policy debate, their research gives ammunition to economists The Atlantic calls "the new inflation hawks."

"Now, it's hard to believe that this is even a debate when unemployment is still at 6.7 percent and core inflation is just 1.1 percent," The Atlantic states, calling their argument "crazy."

"There are only two problems with this story: There's not much evidence for it, and we should ignore it even if there is. It's pretty simple. If tighter labor markets were causing wage inflation, they'd have caused wage inflation. But they haven't, not really."

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More economists are arguing that the long-term unemployed aren't a significant problem for the economy.
Sunday, 23 March 2014 07:40 PM
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