February 4, 2013 / 6:01 PM / in 5 years

High long-term joblessness not here to stay: Fed study

SAN FRANCISCO (Reuters) - People who have been out of work for a long time are finding jobs more easily today than they did shortly after the end of the recession, a study published Monday showed, suggesting that high unemployment is not permanent.

Since the end of the Great Recession, U.S. unemployment has remained elevated, measuring 7.9 percent in January.

Particularly worrisome has been the rise in long-term joblessness, with the average period before landing a new job peaking at 41 weeks in late 2011, before falling to about 38 weeks more recently.

That high level of long-term joblessness raises the specter of a structural shift in the labor market that is keeping the overall jobless rate at a permanently higher level than before.

Research published in the latest San Francisco Federal Reserve Bank Economic Letter by research advisor Rob Valletta debunks that view with an analysis of job-finding rates.

The results showed that those out of work for 20 months or more appear to have better job prospects today than they did in 2010.

“Importantly, that finding implies that the current elevated level of long-term unemployment is likely to disappear over time,” Valletta wrote.

The Fed is in the midst of a bond-buying program aimed at boosting jobs by lowering borrowing costs for businesses and households alike.

Some Fed officials have worried that the high level of long-term unemployment seen in the last few years could become entrenched, undermining the effectiveness of the Fed’s stimulus.

Valletta’s research suggests that such concerns are overblown.

While some degree of higher long-term unemployment may be here to stay, Valletta argued, “this research also suggests that the primary explanation for historically high long-term unemployment is the persistent weakness in overall economic activity and demand for labor.”

Reporting by Ann Saphir; editing by Andrew Hay

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