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Economy

Why Finding Work Is Nearly Impossible For The Long-Term Unemployed

This past Friday, the Atlantic’s Matthew O’Brien dug up a study by Northeastern University which found that, after submitting an application for a job, a person’s chances of being called back for an interview completely collapse if they’ve been out of work for more than six months.

Researcher Rand Ghayad sent out 3,600 fake resumes to 600 job openings. He held constant the gender, educational background, and the racial ambiguity of the names of the fake applicants. But he mixed up how long the fake applicants had been out of work, how often they’d switched jobs, and whether they had any industry experience. In a result O’Brien understandably characterized as “terrifying,” the length of unemployment completely overwhelmed the other two variables as an influencing factor on who got a call back:

As long as you’ve been out of work for less than six months, you can get called back even if you don’t have experience. But after you’ve been out of work for six months, it doesn’t matter what experience you have. Quite literally. There’s only a 2.12 percentage point difference in callback rates for the long-term unemployed with or without industry experience. That’s compared to a 7.13 and 8.95 percentage point difference for the short-and-medium-term unemployed.

There was no similar drop-off for how often a worker had switched jobs in the past. Fake applicants who’d gone through five to six jobs but had experience in the relevant industry were still over 7 percent more likely to get a call back than those without experience. And the latter’s chances were roughly equal to someone who’d only held one or two jobs but lacked relevant experience.

O’Brien recommends that the government start targeting the long-term unemployed for hiring. (The long-term unemployment problem following the Great Depression, for example, arguably wasn’t solved until the mass government-hiring program otherwise known as World War II.) That’s further than any lawmakers have yet proposed going, but in 2011 President Obama and the Democrats tried to something about this exact problem. Their $447 billion American Jobs Act included a tax credit worth up to $4,000 a piece for any firm that hired someone who’d been out of work longer than six months.

The legislation was, of course, filibustered to death by Senate Republicans.

At that point, 6.2 million people were in the ranks of the long-term unemployed, and the number was still over 5 million as September 2012. No small part of that decrease is due to people giving up on finding work entirely, and thus no longer showing up as part of the labor force. The longer these Americans have to go without the chance to work, the more damage is done to their own individual ability to flourish, and thus to the long-term health of the economy as a whole.

Economy

Study: Fighting Inflation Rather Than Unemployment Massively Increases Human Misery

The Washington Post flagged a new study today from a Dartmouth professor and co-authors, which found that high unemployment causes much more misery for the average person than high inflation. That’s significant, in a really discouraging way, because American policy over the last few decades — and especially since the Great Recession — has focused overwhelmingly on keeping inflation low.

The research used several different surveys of well-being and self-reported happiness — cross-referenced with other measures to try to control for the inherent subjectivity — done across both the United States and Europe since the 1970s. This sort of research certainly isn’t the end-all measurement of the effects of economic policy, but well-being and happiness research are relatively well-developed now. They’re worth taking seriously “as a complement to standard approaches,” as the authors put it.

At any rate, when they broke down the numbers for periods of high inflation and high unemployment, and how the two interact, the researchers found human beings are hurt far more by unemployment than inflation:

We estimate the unemployment/inflation trade-off as approximately 3.8. That is to say a one percentage point increase in unemployment lowers well-being nearly four times more than an equivalent rise in inflation. Excluding the five main euro area countries that are especially worried about inflation — Germany, Austria, France, Finland and Austria — the elasticity rises to over six times.

A big reason for this, as the Washington Post sums it up, is that unemployment not only effects people who lost their jobs, “it also generates fear among that person’s family, friends and neighbors over their own job security. The unemployed person may also turn to them for financial or other help, further affecting their well-being.” Meanwhile, inflation is a rise in the general level of prices in the economy — which includes labor more than anything else — so it can’t push up the cost of goods and services without also pushing up incomes. In fact, the single biggest cause of inflation is upward pressure put on consumer prices by growing wages. So there’s a largely unavoidable trade-off between controlling inflation and growing the economy.

Unfortunately, over the last few decades, and especially since the 2008 collapse, the United States has done a much better job minimizing inflation then maximizing employment:

We’ve been consistently hitting our two percent inflation target, even though unemployment remains over seven percent, and an inflation level of three or even four percent is perfectly compatible with (perhaps even better for) a robustly growing economy.

There are several reasons for this imbalance. The Federal Reserve — which controls interest rates and the money supply, and is tasked with the dual mandate to control inflation and boost employment — is intertangled with the banking and financial industry, which has much more interest in lowering inflation. Republicans have also brought a lot of pressure to bear on the Fed to fight inflation, with no serious opposing push-back to prioritize employment. Finally, the decades-long drive to stabilize inflation at two percent has arguably gotten the economy into a rut; it’s now more difficult for job growth to rebound from a recession, and the Fed itself is left with fewer tools to help.

Economy

Unemployment To Cost Young Americans $20 Billion Over Next Decade

Young Americans make up nearly half of America’s unemployed workforce, according to a study released Thursday, and the unemployment rate for Americans between the ages of 18 and 24 is a staggering 15.1 percent. But the bleak job prospects for young Americans isn’t just contributing to the nation’s persistently high unemployment rate. According to a study from the Center for American Progress, the long-term effects will hurt young Americans for years to come.

The negative effects of unemployment, in fact, will cost young Americans more than $20 billion over the next decade, CAP’s Sarah Ayres found:

Not only is unemployment bad for young people now, but the negative effects of being unemployed have also been shown to follow a person throughout his or her career. A young person who has been unemployed for six months can expect to earn about $22,000 less over the next 10 years than they could have expected to earn had they not experienced a lengthy period of unemployment. In April 2010 the number of people ages 20–24 who were unemployed for more than six months had reached an all-time high of 967,000 people. We estimate that these young Americans will lose a total of $21.4 billion in earnings over the next 10 years.

It isn’t just unemployment that is depressing wages for young workers, though. College graduates and young workers are increasingly being pushed in to low-wage jobs as better opportunities aren’t available to them because of a slacking job market. Low-wage jobs have made up a majority of the jobs added since the end of the recession, and there are now 13.4 million college graduates occupying them — a 19 percent increase since the start of the recession.

These losses also hurt the broader economy, as young Americans are less able to spend money. Reports have already shown that unemployment for young Americans is holding back the housing recovery and thus the overall economic recovery, and other reports paint an even worse picture. As Ayres noted, this unemployment will cost young Americans $1.6 trillion over their lifetimes, which will also reduce revenues for the federal government.

But even as youth unemployment remains in crisis, the government has cut more than $1 billion from youth job programs and continues to focus on reducing the deficit instead of policies that will create jobs and help young Americans — and the country as a whole — finally recover from the Great Recession.

Economy

Young Adults Make Up Nearly Half Of America’s Unemployed Workforce

The 5.6 million young adults who are willing and able to work but cannot find a job make up 45 percent of America’s unemployed workforce, while another 4.7 million are stuck in part-time jobs when they are seeking full-time employment, according to a new report from Demos. In total, the U.S. needs to add 4.1 million jobs for young workers — ages 18 to 34 — to return to pre-recession levels of employment.

While unemployment for ages 18-to-34 is high, it is especially high for workers on the bottom half of that range, as this chart from the Demos report shows:

Unemployment is also worse for minority youths — particularly blacks and Latinos — and for young people without a college education. While the unemployment rate is low for young workers with a college degree — 7.7 percent for ages 18-to-24 and 5.1 percent for ages 25-to-34 — it is 10 percent for workers with only a high school diploma and 16.5 percent for workers with less education than that.

Worse, young workers are increasingly employed in low-wage sectors. More than 40 percent of workers between ages 18 and 24 work in either retail or food services, both of which are among the lowest-paying sectors in the American economy. College graduates, as recent Labor Department data showed, are increasingly working in low-wage jobs, largely because they have made up a majority of jobs added since the recession ended. One of every four Americans is projected to be working in a low-wage job in a decade.

For young workers, however, the effects can be worse both for them and the overall economy. Not only do low wages and unemployment hold young workers back economically for the rest of their lives, it also has hurt the housing market and the economic recovery. Still, lawmakers in Washington remain committed to focusing on deficit reduction the country doesn’t need instead of the jobs crisis that is hurting workers and putting a chill on both short- and long-term economic growth.

Economy

Ignore The Spin: Why Food Stamp Enrollment Isn’t Shrinking (Yet)

The Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps, expanded rapidly during the Great Recession, when millions of workers lost jobs and entered poverty, forcing them to turn to the government’s social safety net for help. But even as the economy has begun to recover, SNAP “isn’t shrinking back alongside the recovery,” the Wall Street Journal warned today.

States and the federal government both expanded SNAP access before and during the recession in an attempt to extend more aid to struggling Americans. That has led Republicans like Rep. Paul Ryan (R-WI) aching to cut the supposedly “unsustainable” program, since its costs and enrollment are both at record levels. In the piece, the Journal admits that “the biggest factor behind the upward march of food stamps is a sluggish job market and a rising poverty rate,” but it then asks whether those expansions have made the program far more costly over the long-run and wonders why SNAP enrollment hasn’t dropped along with unemployment rates:

The food-stamp rolls have swollen since 2008 and are projected to stay that way for years. In 2008, SNAP enrollment was 28.2 million. Unemployment peaked in October 2009 at 10% and was at 7.7% as of February, but SNAP kept growing.

The Congressional Budget Office predicts unemployment will drop to 5.6% by 2017 but that SNAP enrollment will drop slightly to 43.3 million people, down 4.5 million from the current level.

That makes it very different from the other big federal support program, unemployment insurance, which shrinks as the economy improves. Continued jobless claims dropped to 3.1 million in February after peaking at 6.6 million in May 2009.

Unemployment insurance enrollment has dropped because it is based on unemployment. SNAP, however, is based on income, which is why it tracks not with the unemployment rate but with poverty levels, as this chart from the Center on Budget and Policy Priorities shows:

That SNAP isn’t shrinking at the same rate as unemployment insurance isn’t exactly a shocking revelation, especially since 58 percent of the jobs created since the recession are in low-wage sectors that are less likely to pull workers out of poverty and off of food stamps. The poverty rate rose sharply after the recession, and it hasn’t dropped significantly since the recovery began. But for all the concerns about SNAP’s long-term costs, the program is projected to return to its return to its historical spending levels by 2023:

The Journal actually acknowledges that the expansions make little difference in the cost of the program, but not until the second-to-last paragraph. “The Congressional Budget Office said reinstating eligibility limits would save around $4.5 billion over 10 years, a fraction of the program’s total cost over that time,” it writes there, all but admitting that the reason SNAP expanded is not because the government made it easier to enroll but because the economy contracted and plunged millions of people into poverty. That, in short, is exactly what the program is supposed to do.

Economy

Government Job Losses Still Plaguing Economic Recovery As More Furloughs, Cuts Loom

For all the talk among conservatives about the “bloated” size of government, public sector job losses have plagued America’s economic recovery from the Great Recession. And with the automatic budget cuts that took effect on March 1 beginning to take effect, those losses are only going to make efforts to fully escape the throes of the recession even harder.

Governments at the state, local, and federal level have cut 740,000 jobs since the beginning of the recession, according to Department of Labor data. So even as the private sector has added 5.2 million jobs in that time, the public sector is still in the red, as this chart from the Wall Street Journal illustrates:

The losses that occurred at the state and local level were due to crimped budgets because of the recession, but they were exacerbated by budget cuts at the federal level too. Hundreds of thousands of teachers, firefighters, police officers, and other government workers have lost jobs as federal aid to states has been reduced and as states have cut aid to localities. The last three years were the worst on record for public sector job losses.

That will only get worse as sequestration continues to go into effect. Government agencies will begin furloughing workers at the beginning of April, and though that won’t have the same effect as all-out job losses, it will still reduce pay for those workers. Reduced aid to states and localities will mean that schools and government offices leave jobs vacant and cut existing staff. Government spending has traditionally pulled America out of economic downturns, and had it maintained its pre-recession employment level, the nation’s 7.8 percent unemployment rate would be a full point lower. Instead, budget cuts that lead to public sector job losses have only made the road to recovery longer than it should have been.

Economy

European Unemployment Hits A Record High, Again

Each and every month recently has brought more miserable economic news from Europe. Today was no exception, as the latest data from Eurostat, Europe’s official statistics agency, shows that the continent broke yet another record for unemployment, as joblessness hit 11.9 percent. That translates to 19 million people out of work in the Eurozone alone (and 26 million across all of the European Union):

Unemployment in the 17-nation euro zone stood at 11.9 percent in January, up from 11.8 percent in December, and from 10.8 percent in January 2012, Eurostat, the statistical office of the European Union, reported from Luxembourg. [...]

European unemployment bottomed in early 2008, just as the financial crisis was getting in motion, and has been on a rising trend ever since. The January numbers were the highest since the creation of the euro.

In absolute terms, Eurostat estimated Friday, 19 million people in the euro zone and more than 26 million people in the overall European Union. were unemployed.

Here’s a chart from Lily Kuo showing the rise in European unemployment:

These numbers should show that Europe’s adherence to austerity is not working. But European Union officials have said that they will not abandon their push to slash spending as a way to turn their economy around.

Economy

Fed Chairman: Unemployment To Remain Above 6 Percent For Three More Years

Unemployment is likely to remain above 6 percent for at least three more years, Federal Reserve Chairman Ben Bernanke said during testimony in front of the House Financial Services Committee today. Responding to questions from Rep. Michael Fitzpatrick (R-PA), Bernanke said a “reasonable guess” for when unemployment will finally come down to 6 percent is 2016:

FITZPATRICK: The Fed has indicated it believes long-term unemployment rates will settle at around 5.2 percent or 6 percent.

BERNANKE: That’s our best guess.

FITZPATRICK: An understanding I heard your testimony earlier about predicting the future. When would you say we might get to around 6 percent? And also, the American people, they believe natural unemployment is actually much lower than that given what we experienced in the 1990s. Maybe your suggestion as to how we address that expectation.

BERNANKE: Again, it’s hard to predict. But a reasonable guess for 6 percent would be around 2016.

Watch it:

That unemployment remains high and will continue to do so for at least three more years would seem yet another argument against sequestration, the automatic budget cuts that will begin taking effect Friday. Indeed, Bernanke was outspoken in his opposition to further fiscal contraction during his testimony, repeatedly saying the budget cuts could damage the economic recovery and that the Federal Reserve, which has been acting to stimulate the economy through monetary means for months, could use help from Congress.

Instead of offering that help, Congress remains focused on deficit reduction, even as evidence mounts that the only spending problem America has right now is that the government isn’t spending enough. But Republicans have repeatedly blocked efforts to further stimulate the economy, choosing instead to push spending cuts that have held back the recovery. The looming round of cuts will only make that worse: the Congressional Budget Office projects that sequestration will knock 0.6 percentage point off economic growth while resulting in the loss of more than 700,000 jobs.

Economy

Jobless Workers Will Lose $400 In Yearly Unemployment Insurance Thanks To Sequestration

Sequestration, the automatic spending cuts that loom at the end of the month, will have widespread and devastating effects on the American economy, reducing growth by 0.6 percent and costing it 700,000 jobs, according to independent analysts. But it will also have major effects on programs that Americans depend on, particularly as the modest economic recovery continues.

Among the programs that will face cuts is the federal unemployment insurance program. While the part of the program that benefits the unemployed by providing grants to states is exempt from the cuts, the extended benefits signed into law at the start of the Great Recession are not. Extended benefits provide aid to workers who have been unemployed longer than 26 weeks, when most states end their programs. The budget cuts will reduce those benefits, which average roughly $300 a week for the program’s 3.8 million recipients. CNN reports:

The forced spending cuts scheduled to take effect next month trim the program’s funding. Recipients of those payments could lose an average of more than $400 in benefits each through the end of the federal fiscal year, according to the Department of Labor.

America’s unemployment insurance program is already stingy compared to those used by other Western industrialized nations, and it is rapidly becoming even stingier. Seven states have passed laws reducing access to unemployment benefits, and those laws carry the side-effect of ending access to federal unemployment compensation as well. In North Carolina, where the most radical change was made, benefits were cut by more than $200 a week, and the state’s jobless will lose access to $780 million in federal funds.

Democrats have offered plans to replace the sequester with a combination of spending cuts and revenue increases that protect the most vulnerable Americans, including those who have been unemployed for months. Republicans, however, have refused to negotiate on any package that is not made up solely of spending cuts, even though spending cuts have made up the majority of deficit reduction efforts so far.

Economy

North Carolina Governor Signs ‘Unprecedented’ Gutting Of Unemployment Insurance

North Carolina Gov. Pat McCrory (R) today signed a law that imposes severe cuts to his state’s unemployment insurance program, a change that will also cost jobless workers in the state access to the federal unemployment compensation program.

McCrory’s signature earned him a rebuke from the National Employment Law Project, which said in a release that the law will result in “the most severe cuts to both state and federal unemployment insurance of any state in the nation”:

These heartless cuts, in the state with the fifth-highest jobless rate in the nation, at 9.2 percent, show a shocking disregard for 400,000 unemployed North Carolinians and their families, many of whom will now go from struggling to barely make ends meet to outright struggling to survive. The immediate pain of these cuts will fall on North Carolinians unfortunate enough to lose work through no fault of their own in a weak economy where jobs are scarce. But the entire state will take a hit from the loss of hundreds of millions of dollars in spending at local businesses that would’ve boosted the local and state economies.

The law reduces the maximum benefit allowed from $535 a week to $350 while cutting the number of weeks an unemployed worker is eligible for the program from 26 to 20. As a result, 170,000 jobless North Carolinians will also lose access to $780 million in federal unemployment funds. The average unemployed worker in the United States has been off the job for 35 weeks, meaning many jobless workers will now face the prospect of searching for a new job without access to a safety net program.

Republican state senators have touted the law as “re-employment” program, even though research suggests that workers who receive unemployment benefits search harder for jobs than those who don’t. McCrory, meanwhile, praised the fiscal responsibility of the law, which will allow North Carolina to pay back money owed to the federal government a measly three years earlier than it would have under the old program.

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