High Cost of Long-Term Employment: The Pew Charitable Trusts

Pew Economic Policy Group (a very detailed and thorough report)
The federal government defines “long-term unemployment” as a jobless period of six months or longer. In March 2010, over 44 percent of unemployed Americans met or exceeded that standard—the highest rate since WorldWar II. In contrast, during the severe recession of the early 1980s, the percentage of workers unemployed for six months or longer peaked at 26 percent in 1983.

The media have reported the historically high six-month unemployment figure, but a new study by the pew fiscal Analysis initiative goes further by calculating the percentage of people who have been unemployed for a year or more. This analysis further illuminates the extent of the country’s long-term unemployment problem and its impact on the nation’s fiscal condition.

According to pew’s analysis of Current population survey (Cps) data from December 2009, 23 percent of the nearly 15 million Americans who are unemployed have been jobless for a year or more. That percentage translates into 3.4 million people, roughly equivalent to the population of the state of Connecticut.

Long-term unemployment cuts across nearly every industry and occupation. Even in fields with overall unemployment rates that are relatively low, workers who are unemployed are remaining so for a long time.

Long-term unemployment is occurring among people of all ages. While workers 55 or older are less likely to become unemployed, those who do are more likely to stay unemployed for a long period of time. Nearly 30 percent of unemployed people 55 or older have been jobless for a year or longer—a higher rate than any other age group.

Once a person is out of work, a high level of education provides only limited protection against a long period of unemployment. Twenty-one percent of unemployed workers with a bachelor’s degree have been without work for a year or longer, compared to 27 percent of unemployed high school graduates and 23 percent of unemployed high school drop-outs.

In the current fiscal year, federal spending on unemployment benefits is projected to be five times greater than it was in each of the years immediately preceding the recession. in each fiscal year between 2005 and 2007, annual federal spending on unemployment insurance ranged between $31 and $33 billion. Federal spending on unemployment benefits could reach $168 billion in fiscal year 2010, of which $81 billion represents spending on regular benefits. The remaining $87 billion represents the cost of additional unemployment aid that Congress has approved (or is poised to approve) to help people who have been out of work for six months or longer.

The high long-term unemployment rate represents the continuation of a decades long trend, one that has worsened after downturns but has persisted even during periods of growth. in March 2004, at its most recent peak, the percentage of people who had been unemployed for at least six months was 23.4 percent. In November 2007, the last month of economic expansion before the current recession, 19.5 percent of the unemployed had been jobless for at least six months (see figure 1).

Pew’s analysis further illuminates this problem by calculating the percentage of people who have been unemployed for a year or more. in December 2009, nearly three and a half million Americans, or 23 percent of the unemployed, had been jobless for a year or longer.

The nation’s long-term unemployment rate is historically high, and it has had a substantial impact on families, government budgets and the country’s overall economic health. Pew’s finding that nearly a quarter of the unemployed have been out of work for a year or more casts new light on the extent of the problem.

Federal spending on unemployment benefits could reach $168 billion in fiscal year 2010, more than five times the cost of benefits in the years immediately preceding the downturn. More than half of that amount represents the cost of extended benefits. The federal government’s decision to help unemployed workers pay for health insurance cost an additional $14.3 billion in fiscal year 2009, and could cost as much as $15 billion in fiscal year 2010. The high long-term unemployment rate also has spurred increased spending on other government safety-net programs and contributed to a decline in federal tax receipts.

Link to site to obtain complete report