June 17, 2015

Long Term Unemployment

Long-term unemployment has remained a persistent problem post-Great Recession – a somewhat new issue for the U.S., as compared to Europe. Despite declining over the last 5 years, the share of the unemployed who have been out of work for more than 6 months still exceeds its previous peak reached in 1981-82, and is well above its average in the last recovery. Yet, measures of short-term unemployment are close to their average rates in the last recovery. As a result, overall unemployment remains elevated because of the large number of people who have been unemployed long term.

There could be a lot of new unemployment coming from new technology. 6 million professional driving jobs in the USA are at risk with the development of self driving cars. A lot of these people could end up as long term unemployed. There should be more aggressive job creation policies and retraining programs in parallel with introduction of the new job displacement technologies.

According to a study by Columbia’s Till von Wachter and the Chicago Federal Reserve’s Daniel Sullivan, long-term unemployment can knock up to 18 months off of life expectancy:

We use administrative data on the quarterly employment and earnings of Pennsylvanian workers in the 1970s and 1980s matched to Social Security Administration death records covering 1980–2006 to estimate the effects of job displacement on mortality. We find that for high-seniority male workers, mortality rates in the year after displacement are 50%–100% higher than would otherwise have been expected. The effect on mortality hazards declines sharply over time, but even twenty years after displacement, we estimate a 10%–15% increase in annual death hazards. If such increases were sustained indefinitely, they would imply a loss in life expectancy of 1.0–1.5 years for a worker displaced at age forty. We show that these results are not due to selective displacement of less healthy workers or to unstable industries or firms offering less healthy work environments. We also show that workers with larger losses in earnings tend to suffer greater increases in mortality. This correlation remains when we examine predicted earnings declines based on losses in industry, firm, or firm-size wage premiums.

Comparing the U.S. to other developed countries, they find:

* In Italy, just under a quarter of all workers are ages 15-34, yet they represent nearly half of the long-term unemployed. Only 15 percent of the long-term unemployed in Italy are 50 or older, compared with 31 percent in the U.S. In addition, a high percentage (56) of Italian long-term unemployed workers have less than a high school education, whereas in the U.S., only 18 percent of the long-term unemployed lack a high school degree. These differences suggest that long-term unemployment in the U.S. reflects a different phenomenon than it does in countries that have had persistently high long-term unemployment.

* In Sweden, the share of the long-term unemployed jumped from 20 percent to 50 percent after its severe financial crisis in the early 1990s, and slowly fell to near its pre-crisis levels, before rising again in the latest recession.

* In Canada, the long-term unemployed typically made-up a higher share of the unemployed compared to the U.S., although the share of long-term unemployed workers trended down from the early 1990s to the Great Recession, and is now almost half the U.S. share.

Comparing the unemployed to the employed as a whole in the USA, it is found that the unemployed are younger, less likely to be married, and less well-educated (about one third of employed workers have a bachelor’s degree, while less than 20 percent of the unemployed have one; nearly 20 percent of the unemployed lack a high school diploma – twice the rate for the employed). In addition, African Americans comprise 22 percent of the long-term unemployed, compared with just 10 percent of the employed population.

Policies to fight Long Term Unemployment

* use policies to discourage discrimination against the unemployed at any stage of the hiring process.
* try to get more hiring of unemployed and more job creation from federal agencies
* programs that subsidize hiring of long term unemployed

IMF cross country study of job creation

Many studies have attempted to explain why some countries have higher unemployment rates than others, but less attention has been devoted to countries' relative performance in job creation, or net employment growth. This paper presents the findings of a new study by IMF staff that has systematically analyzed job creation over the past two decades in the industrial countries, focusing particularly on differences within Europe.

The findings were
* too much union power dampens employment
* high barriers to getting rid of employees when companies need to get rid of them makes companies reluctant to hire

Mckinsey had a 2011 study looking at job creation in the USA from 2011 to 2020

The US workforce will continue to grow until 2020, but under current trends, many workers will not have the right skills for the available jobs. Technology is changing the nature of work: Jobs are being disaggregated into tasks, work is becoming virtual, and firms are relying on flexible labor (temporary, contract workers). These trends offer new opportunities for creating jobs in the United States, a trend that some companies do not fully appreciate.

Progress in four dimensions will be essential for reviving the US job-creation machine:
1. Develop the US workforce-skill to better match what employers are looking for;
2. expand US workers' share of global economic growth by attracting foreign investment and spurring exports;
3. revive the nation's spark by supporting emerging industries, ensuring more of them scale up in the United States, and reviving new business start-ups; and
4. speed up regulatory decision-making that blocks business expansion and new investment.

Eurostat has unemployment statistics for Europe, USA and Japan

Shadowstats looks at broader measure of unemployment

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