This document
compares the characteristics of the long-term unemployed in March 2007 and
March 2014, supplementing and updating information provided in CBO’s Understanding and Responding
to Persistently High Unemployment.
The rate of unemployment in the United States has exceeded
8 percent since February 2009, making the past three years the longest stretch
of high unemployment in this country since the Great Depression. Moreover, the Congressional
Budget Office (CBO) projects that the unemployment rate will remain above 8
percent until 2014. The official unemployment rate excludes those individuals
who would like to work but have not searched for a job in the past four weeks
as well as those who are working part-time but would prefer full-time work; if those
people were counted among the unemployed, the unemployment rate in January 2012
would have been about 15 percent. Compounding the problem of high unemployment,
the share of unemployed people looking for work for more than six
months—referred to as the long-term unemployed—topped 40 percent in December 2009
for the first time since 1948, when such data began to be collected; it has
remained above that level ever since.
Such persistently high unemployment has wide-ranging repercussions:
It places financial, psychological, and even physical strains on people who are
unable to find work and on their families as well; it places budgetary
pressures on the federal government and on state and local governments, as tax
revenues decline and expenditures increase; and it results in a long-term
erosion of skills that will reduce the nation’s productivity and people’s
income in the future.
In this study, CBO examines a broad array of policy approaches
designed to reduce unemployment. Some of those policies would aim to boost the
economy and demand for goods and services, reflecting the fact that the increase
in unemployment in general and long-term unemployment in particular is
primarily attributable to weak demand for labor, which, in turn, is the result
of weak aggregate demand. Policies to increase demand for workers could reduce
unemployment substantially in 2012 and 2013, although those policies could be
costly to the federal government and would vary greatly in their effectiveness
per dollar of budgetary cost. Other policies that CBO examined, including
worker training, changes to the unemployment insurance (UI) system, and helping
the unemployed transition to new jobs, would probably not have a significant
effect on the overall unemployment rate during the next two years, primarily
because of their limited scope, but they could provide support to certain groups
and have longer-run positive effects.
Unemployment and
Its Consequences
Households with unemployed workers are adversely affected
by joblessness in many ways. For workers who have been displaced through no
fault of their own—specifically, who lost or left a job because their plant or company
closed or moved, because there was insufficient work for them to do or because
their position or shift was abolished—the drop in earnings associated with
losing a job during a recession may persist for many
years, even when these workers eventually find a new job. Older workers and
those with long tenure in their previous job are especially vulnerable because
new jobs for those workers typically pay less and offer less potential for
earnings growth. Other types of unemployed workers—for example, people entering
the labor market for the first time (typically after completing school)—are
also adversely affected by a weak economy. People who start their career in
times of high unemployment tend to have persistently lower earnings than their
counterparts who begin seeking work under better economic circumstances.
In addition to its immediate and lasting effects on earnings
and family finances, unemployment is also correlated with deteriorating mental
and physical health and with increased mortality. A parent’s job loss can lead
to worse schooling outcomes for children and, ultimately, to worse labor market
outcomes for those children once they become adults. In those and other ways,
unemployment is costly for many households, and the adverse effects are probably
worse for those unemployed for an extended period.
Read the full Congressional budget Office report by going
here…
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