Long-Term and Discouraged-Worker Unemployment in the Great Recession

One of the most striking features of the Great Recession, and one it has in common with the Great Depression, has been the extraordinary increase in long-term unemployment.  I want to take a brief look at this occurrence.

The following chart presents the “Long-Term Unemployment Rate” (or LTUR), defined as those unemployed for 27 or more weeks divided by the labor force.  These data are available monthly since 1948.

*(Unemployed 27+ Weeks)/(Labor Force.  Click to enlarge.

Interestingly, while the increases in LTUR were similarly sharp (but relatively small) in the 1990-91 recession, and while the LTUR rose considerably after the formal end of the 2001 recession, the subsequent decline in the LTUR was slower.  In fact, the LTUR took about 8 years after the 1991 recession to return to its previous low, and following the 2001 recession, it did not return to its previous low. 

The LTUR-Overall UR relationship is shown (below) in red for the Great Recession.  It is clearly different from the prior post-World-War II experience.  Had the LTUR increased in line with the recent past, it would have risen from around 1.5% to around 2.5%.  So it has been 1.5 to 2 percentage points higher than our recent experience would suggest.  In general, more severe recessions have resulted in higher LTURs.  In the recession of 1981-83, the LTUR rose above 2.5%, and then fell between 1983 and 1985 to a little over 1%.  Similar (but smaller) sharp rises and declines occurred in the 1974-75 recession and in earlier ones as well.  The decline in the LTUR, however, has been roughly in line with the recoveries from previous recessions—it has dropped by about 1.25 percentage points in the 3 years since it peaked, very comparable to the drop following the 1974-75 recession and just a slightly smaller drop than in the recession of the early 1980s.  Indeed the number of those unemployed 27+ weeks has dropped by about 2 million in the last three years.

 

Click to enlarge.

In addition to long-term unemployment, it is important, I think, to consider what has happened to the number of discouraged workers—those who have dropped out of the labor force because they believe that there are not jobs available. 

[This unemployment rate is calculated as (DW)/(LF+DW).]  Click to enlarge.

Monthly data on the number of discouraged workers dates from January 1994 (and are available only on a not-seasonally-adjusted basis), so it’s more difficult to get a complete understanding of what happened in earlier, more severe recessions (than the 1990-91 and 2001 recessions).  Clearly, though, the DW unemployment rate rose by a factor of more than 4 from late 2007 to the end of 2011 and has since declined (but not smoothly) and is not around 0.5%.  That’s still more than double what appears to be a typical full-employment level for this rate of about 0.2%.  But, then, the overall economy is far from its apparent full employment rate as well (7.7%, compared with a full-employment unemployment rate of about 5.5%). 

The apparently unusually large increases both in long-term unemployment and in discouraged-worker unemployment are one (very good) reason for being concerned that some of the present unemployment has shifted from being cyclical—a consequence of the recession—to becoming structural—a misfit between the skills of the unemployed/discouraged workers and the current needs of employers.  This may be true, but it’s important to keep in mind that the recovery from the Great Recession has been unusually tepid (with respect to employment) as well.  If we are encountering a growing structural problem, it is, I would suggest a consequence of that slow recovery.

(All data used for this post can be found at www.bls.gov.)