This week, economists at Princeton University published a paper entitled “Are the Long-Term Unemployed on the Margins of the Labor Market?” that painted a bleak picture of the United States economy and labor market: only one in 10 of long-term unemployed individuals will find a job within one year, a headline that is known much too well for millions of out of work Americans.
Written by Alan Krueger, a former top economist for President Barack Obama; Judd Cramer; and David Cho; the paper argued that the long-term employed people – those who have been out of work for at least six months – will experience long-term pain in their job search because of two devastating factors:
One aspect of being chronically jobless is that they will become discouraged and stop searching for work altogether, a factor that is usually omitted from the unemployment rate. Another important element is that being out of work for an extended period of time will give potential employers the wrong impression and have them believe they are incompetent to fulfill the job tasks or have the insufficient skills since they have been out of the labor force for so long.
Long-term unemployed people are a part of several demographic characteristics: educated and uneducated, old and young, experienced and inexperienced, highly skilled and unskilled. Despite calls by the study authors for the Federal Reserve to enact helpful policies, Fed Chair Janet Yellen confirmed in remarks to reporters that past economic research has indicated that long-term unemployment plays less of a factor in regards to wage inflation.
Speaking in an interview with CNBC on Tuesday, Krueger, a Princeton professor, made the case that those who have been out of work for a long period of time need assistance from both monetary and fiscal policy. The former chairman the White House Council of Economic Advisers from 2011 to 2013 warned that with unemployment benefits running out then it could displace millions of workers and cause them to drop out of the job market.
“The longer people are unemployed, the more challenges they face,” Krueger told the business news outlet. “Employers are less likely to call them in for interviews. They grow discouraged. Their skills grow obsolete. They become more isolated, more disengaged.”
A recommendation he has put forward is for the federal and state governments to offer tax breaks for businesses which would provide them with an incentive to hire the long-term jobless people. He added that the Fed’s stimulus measures have given the labor market a shot in the arm that it has so desperately needed since the Great Recession.
On Wednesday, James Bullard, St. Louis Federal Reserve president, spoke at an investor conference in Hong Kong in which he projected that the U.S. unemployment rate would fall below six percent. He added that the outlook for the U.S. economy appears to be “quite good,” even though economic data suggests the opposite.
“The biggest thing is that unemployment has come down more quickly than expected,” said Bullard, at the annual Credit Suisse investor conference.
A recent Gallup poll found that only one-quarter of Americans are optimistic about finding a job in today’s economy, up from just eight percent in 2012. This could very well show how Americans are frustrated with the government’s handling of the economy and confirm that there is a crisis in the nation’s labor market.