Millions of Americans are staring at the reality of long-term unemployment, a precarious and worsening situation that threatens to drag on the economic recovery even after the pandemic begins to subside.
More than one in three jobless Americans — or nearly 4 million people — are now classified as long-term unemployed, which the Labor Department defines as being out of work for six months or more. And that total, which is expected to rise again when January jobs data is released on Friday, is likely an undercount: Combined with another 4 million who have stopped searching for work entirely, roughly one in 20 people who were working a year ago have now been shut out of the labor market for more than six months or dropped out altogether.
The phenomenon poses an obstacle to the recovery, since the more time a worker spends out of a job, the longer it takes to return to employment, studies show. The fear among many policymakers is that the swelling ranks of the long-term unemployed will have trouble finding jobs even after the vaccine is distributed because they have spent so much time out of work — contributing to a prolonged period of heightened joblessness and, in turn, jeopardizing President Joe Biden’s goals of turning the economy around quickly.
“It is a caution signal,” said Robert Rosener, senior U.S. economist for Morgan Stanley. “If we’re left with a large pool of long-term unemployed workers, it’s something that could mean persistently higher rates of unemployment and persistent need for support for things like unemployment benefits.”
The ripple effects of long-term joblessness can be severe, affecting everything from personal savings and future earnings to mental and physical health and even children’s well-being. Compounding the problem is the unique composition in this recession of the long-term unemployed, a significant portion of whom worked in low-wage jobs in the leisure and hospitality industry and who are less likely to have a savings account or safety net to help them weather an extended period without a paycheck.
“This is mostly about low-income people, and a large share of them. And therefore a large share of the unemployed risk losing their apartment or their home,” said Bill Spriggs, chief economist at the AFL-CIO.
Some of the jobs in these sectors have disappeared entirely, as restaurants and hotels have shut down during the crisis or downsized their operations. But the larger risk with long-term unemployment centers is the concern that even once the industry recovers, these workers may have detached from the labor market altogether, or gotten into such deep financial trouble that they will be unable to find their way back.
One study by Princeton University economists after the Great Recession found that only 11 percent of workers who were long-term unemployed in a given month during that downturn had returned to steady full-time employment a year later.
“You think about the problem of getting a long-term unemployed person into a job — this is very hard to do,” Spriggs said. “If you talk about getting a homeless person into a job, it’s like, forget it. You’ve gone from, ‘this is a highly difficult thing to do,’ to, ‘this is almost impossible.’”
The growing problem runs counter to the idea that the U.S. economy and labor market will be able to bounce back quickly to pre-pandemic levels once shutdown orders are lifted and consumers flood back to restaurants and retail stores. And some recent economic forecasts reflect that: The nonpartisan Congressional Budget Office projected this week that unemployment will remain above pre-pandemic levels through the end of the decade.
Democratic lawmakers and many economists emphasize that the sharp rise in long-term unemployment highlights the urgent need for Congress to pass another round of rescue spending, and quickly, to help keep jobless Americans afloat through the end of the crisis and allow for a faster recovery once the pandemic subsides. Another extension of unemployment benefits, supporters say, would have the double-barreled benefit of giving jobless Americans money for rent and bills — which studies show they will spend, putting it right back into the economy — while keeping them attached to the labor market, since the program requires workers to continue looking for a job.
On the flip side, spending too little could spark only sluggish economic growth and lead to a slower recovery, where the long-term unemployed are left struggling for months or years without work.
“You don’t want people going bankrupt and later having to dig out of that,” said Katharine Abraham, who served as a member of the White House Council of Economic Advisers in the Obama administration. “That’s going to be bad for them, and it’s going to be bad for the economy, too.”
In addition to passing emergency relief, others are pushing for more targeted solutions to help the long-term unemployed. Sen. Chris Van Hollen (D-Md.) introduced legislation before the pandemic that sought to bring these workers back into the labor force by using federal funding to create year-long jobs at the local level, while providing resources to support workers — training programs, for example, as well as child care or substance abuse treatment.
“The idea is to give people a foothold to build on,” Van Hollen said in an interview.
The Maryland Democrat has spoken about the issue in recent weeks with members of Biden’s economic team, including National Economic Council Director Brian Deese and Cecilia Rouse, who will chair the Council of Economic Advisers if confirmed by the Senate. Both were receptive, Van Hollen said. He’s pushing for some aspects of his plan to be included in the next round of stimulus legislation that Biden has promised as part of his “Build Back Better” agenda.
“There’s strong support,” he said. “The question is exactly what form that takes, and exactly when.”
In the meantime, policymakers in Congress and the White House are primarily focused on tackling the coronavirus — distributing the vaccine, ramping up testing and reopening schools. And while each of those steps is necessary to rein in the virus and advance the economic recovery, the long-term unemployment and its effects has already sparked its own set of economic and societal issues that will last far beyond the pandemic itself.
“To a large degree, long-term unemployment, we should see that as an indicator of larger problems in the economy,” said Susan Houseman, vice president and director of research at the Upjohn Institute for Employment Research.
“But to some degree, it’s also an independent problem. The longer it persists, it has very real effects on individuals,” she said, “very real effects on their ability to be employed, their outlook, their confidence, all of those things, and can lead to long-term health problems.”
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