international analysis and commentary

Beyond their control: the long-term unemployed America

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There is clearly something different about the Great Recession. Though it officially ended in June 2009, it lingers. We still see it in lives around us and it could definitely be sensed in President Obama’s State of the Union Address on January 28. He said the word “job(s)” almost forty times. Even though unemployment is at its lowest in five years, recovery is slow – especially for America’s long-term unemployed. This subset of workers is composed of people of all ages and backgrounds who look, and look and look for work, but the jobs just don’t come through. At the end of 2013 – 4.5 years after the Recession ended – they made up 37.7% of America’s unemployed according to the Bureau of Labor Statistics.

“The share of unemployed workers who have been out of work for six months or longer is much higher than in previous recessions,” explains Joshua Mitchell, a research economist at the Urban Institute. “Even the recession of the early 1980s, which was also severe, had the share peaking at around 25%. This time it peaked at 45% and has stayed high much longer. You would have to go back to the Great Depression in the 1930s to find anything comparable.”

Today’s long-term unemployment is often attributed to technology advancements, or extended unemployment benefits making workers dependent on the government, or even the housing market collapse that tied families to homes in places where they could not find work.

According to Mitchell, however, the real explanation is a weak recovery. For many months there were only enough jobs created to keep up with population growth. Additionally, even though unemployment is decreasing (now 6.7% nationwide, down from 7.9% one year ago), some economists predict that it will continue to fall not simply because more people are finding jobs, but also because many jobless workers – especially those unemployed for long periods – are dropping out of the labor force altogether, or they are accepting lower-level jobs that they previously would not have taken.

“The gut-wrenching fear of being forced out of desperation to accept menial, unsatisfying employment keeps me up nights,” says Jeff Phillips, a 30-year veteran of the broadcast news business who lost his job in Washington state in March 2013 and is now among the ranks of the long-term unemployed. “I can’t imagine what a hopeless, devastating feeling that would be to find myself working as a convenience store clerk or in another low-wage, low-opportunity job. I’ve worked too long and hard to sentence myself to that. But the fear is very real.”

The fear that Phillips feels and the many other side effects of long-term unemployment have been widely studied in think tanks and reported on by the mainstream media. The families of the long-term unemployed often fall deep into poverty, spend away savings and find themselves surviving on impossibly low budgets. They live in terror of never finding a job again, or never being able to return to their previous lifestyles.

It’s an issue that affects workers of all sectors and brings with it a series of personal problems such as career setbacks (often permanent), poorer mental and physical health, even higher mortality rates. According to data assembled by the Urban Institute, 65% of long-term unemployed or underemployed avoided dental visits in 2011, 56% put off healthcare and 40% did not fill their prescriptions. This problem is especially magnified as health insurance in America is widely linked to private employment benefits (though this should gradually change as Obamacare is implemented).

In addition, the children of the long-term unemployed are also affected, often performing poorly in school compared to children whose parents are working. And communities can suffer too when there are large concentrations of long-term unemployed, as lower tax revenue means fewer resources for schools and police. This translates into higher crime and fewer opportunities for children who may need them most.

Stigma is another major problem linked to long-term unemployment. Phillips, who has sent out dozens of resumes over the past several months and received only one interview in his community, says being out of work has had a devastating impact on his sense of self-worth and self-esteem and that the phenomenon known as “scarring” is very real.

“I have no doubt that the fact that I have been out of work for most of a year puts me at the back of the line for employment,” says Phillips. “I’ve been a hiring manager. If you look at a stack of resumes and you have an unemployed candidate up against someone currently working, you likely will default to the employed candidate. I think people view you as being damaged goods.”

Research by the Federal Reserve Bank of San Francisco, quoted in a New York Times article in late 2013, says, “In any given month, a newly jobless worker has about a 20 to 30% chance of finding a new job. By the time he or she has been out of work for six months, though, the chance drops to one in 10.”

“This can lead to a destructive self-fulfilling prophecy where unemployment begets longer unemployment,” Mitchell says. “Workers who lost their job in the 1980s recession had lower employment and earnings lasting at least 15 years after that recession ended.”

Finally there is the issue of unemployment benefits – which vary from state to state, both in the number of weeks and in pay scale. An additional federal program offering a maximum of 47 weeks of extra benefits to the long-term unemployed whose state benefits had run out expired at the end of 2013, leaving more than a million people without coverage. Democrats failed to resurrect the program in January, exactly in the moment when many states lowered their benefit periods from an average maximum of about 73 weeks to about 26.

In a Congress that is ever-more paralyzed, Democrats point fingers at Republicans saying that blocking the payouts tore the safety net when the economy was still too weak and the job market still too tough. Republicans, on the other hand, blame Democrats for not bringing about stronger job growth, adding that too much aid to the unemployed only encourages dependency – not a stronger work force.

Senator Paul Rand (R-KY), was quoted in an article in The Economist earlier this year saying that extending benefits causes workers “to become part of this perpetual unemployed group in our economy” and “actually does a disservice to the people you’re trying to help.”

North Carolina enflamed the debate back in July 2013 when it not only cut its benefit program from 73 weeks to 20 weeks, but it also reduced maximum weekly payouts. Since then its unemployment rate sunk more than three times the national average. Proponents praise this as a success story, while critics note that North Carolina’s labor force saw a twofold decrease compared to the national average – hinting that rather than finding jobs, many simply quit looking.

“In more normal times, there may be some disincentive effects of unemployment benefit extensions,” expert Joshua Mitchell says. “However, unemployment benefits keep workers looking for jobs and prevent them from dropping out of the labor force altogether. Particularly when the overall economy remains depressed unemployment benefits also boost consumer spending and help lower unemployment. Most of the research that looks at extending unemployment benefits when the economy is weak overall finds that the disincentive effects are quite small.”

Jeff Phillips, who is covered by federal emergency benefits until June, says he sees arguments on both sides of the debate, but suggests policy makers put themselves in his shoes. “My unemployment pays me what equals about $9 an hour. There is very little incentive for me to accept minimum wage employment that would pay $9.32 an hour. I can’t afford to take a minimum wage job and limit my opportunity to make contact with employers during normal business hours. I want to work, but I want to work at a salary level commensurate with my skills and experience.”

The obvious solution to long-term joblessness is economic policy that promotes faster growth and creates more jobs. But as we’ve seen, that’s a slow route. Other solutions include work-sharing, where employers keep workers at reduced hours rather than laying them off. In return the employers receive financial incentives. President Obama has suggested giving partial unemployment benefits to such workers to help them make ends meet and he said in his State of the Union Address that he would partner with CEOs to encourage them to hire the long-term unemployed.

Other ideas include changing unemployment benefit requirements to allow more people to qualify (now benefits are based on work history), passing another payroll tax exemption for employers who hire the unemployed – as was done in 2010, job assistance targeted to the newly unemployed to prevent them from becoming long-term unemployed and increasing education and skills through federal grants.

As 2014 is an election (midterm) year, these solutions are likely to line the battleground as Democrats and Republicans debate over America’s employment troubles. In the meantime, people like Jeff Phillips will stand at the center of the fight and continue looking for an exit from the revolving door.

“I believe that for me to go back to work, it’s going to take a special set of circumstances,” says Phillips. “I have children to support. I can’t give up. And despite the chronic feelings of worthlessness, I am inherently an optimist. I believe I will go back to work.”

Unfortunately, as Obama mentioned in his January speech, the notion that hard work can get you ahead in America has taken some serious blows. In 2014, the two parties will have to find the will to work together – despite election furor – and prevent the long-term unemployed like Phillips from relying primarily on luck and inherent optimism. A true recovery will mean more than new jobs, it will mean a real opportunity to do more than just get by.

 

 

Upon publishing, Aspenia online learned that Jeff Phillips was re-hired by an employer he left 17 years ago.