Column: The tragedy of long term unemployment

(Felix Salmon is a Reuters columnist but his opinions are his own.)

Job seekers listen to a presentation at the Colorado Hospital Association health care career fair in Denver April 9, 2013. REUTERS/Rick Wilking

By Felix Salmon

Paul Krugman and Megan McArdle both point to this chart today:

What you’re looking at here is the plight of the long term unemployed in the wake of the Great Recession. If you look at the economy before the recession (the blue line), it works pretty much as you think it would: as the number of job openings goes up, the long term unemployment rate goes down. But then the crisis happened, and now we’re in a Bizarro world where the long term unemployment rate goes up even as the number of job openings increases.

It’s worth looking at this chart in the context of one which might be more familiar: What you’re looking at here is initial claims for unemployment (the blue line) and the unemployment rate (the red line); both are rebased to 100 at the end of 2007. You can see that initial claims have historically been a very good leading indicator when it comes to the unemployment rate. And that’s perfectly intuitive: if the number of people newly claiming unemployment each week is going down, you’d expect the overall unemployment rate to follow.

But there’s something worrying about this chart: although the unemployment rate is indeed coming down, it’s not coming down as fast as you’d expect it to, given the sharp drop in initial unemployment claims. In other words, people aren’t becoming newly unemployed, but the unemployment rate is still staying stubbornly high. Which is another way of saying that this time around, the long-term unemployed are finding it particularly difficult to get back to work.

I decided to put together the exact same chart, only instead of using the overall unemployment rate, I’d look at just the long-term unemployment rate - the proportion of people who have been unemployed for more than 27 weeks. This is what I found: The blue line, in this chart, is exactly the same as the blue line in the chart above it. But the red line is long term unemployment - which is at massively unprecedented levels.

This chart tells me two things. Firstly, it is indeed the long-term unemployed who are the reason why the unemployment rate overall isn’t coming down as fast as it should be. And more importantly, there’s a quiet humanitarian disaster happening right under our noses. Here’s McArdle:

Short of death or a debilitating terminal disease, long-term unemployment is about the worst thing that can happen to you in the modern world. It’s economically awful, socially terrible, and a horrifying blow to your self-esteem and happiness. It cuts you off from the mass of your peers and puts stress on your family, making it likely that further awful things, like divorce or suicide, will be in your near future.

McArdle and Krugman differ on the policies that should be enacted to address this emergency - but they agree that policies should be enacted to address this emergency, with urgency. That’s where they both part ways with Congress, which is much more interested in deficit reduction than it is in trying to make a dent in the long term unemployment rate.

The lesson of the past few years is that this is not a normal recovery: corporate profits are doing great, while total employment remains anemic. We can’t trust the invisible hand to generate the millions of jobs that are needed, especially with regards to the long-term unemployed. With gridlock in Washington, the result is a huge amount of unnecessary human misery.