Long-term unemployment is when workers have been out of work for 27 weeks or more. However, to be counted as such by the Bureau of Labor Statistics, the long-term unemployed must have actively looked for work in the last four weeks. As you can imagine, the number of long-term unemployed is probably under-counted, since it's hard to stay positive enough to maintain your job search effort when you've been unsuccessful for the last six months.
In fact, only 10% of the long-term unemployed find a job each month, according a new report by the San Francisco Federal Reserve. This is worse than the 30% per month of the short-term unemployed who are successful.
However, the situation is far from hopeless. The study also found that half of the long-term unemployed will find a job in six months, and 75% will do so within a year. Even that group who still haven't found a job in 18 months will eventually find something if they keep looking. The San Francisco Fed found that the chances of finding a job didn't decline for those unemployed for that long. (Source: CNN Money, Long Term Unemployment, June 14, 2012)
Long-term Unemployment Statistics:
As of May 2012, there were still 5.4 million long-term unemployed, which is 42.8% of total unemployment. This is down a bit from its peak in the second quarter of 2010, when 46% of unemployment was long-term. However, it's much worse than in the 1981 recession, when only 26% of the unemployment figures were due to the long-term unemployed. Unemployment was worse then, with a 10.8% overall unemployment rate vs 8.2% in May 2012. (Source: The Federal Reserve Bank of Richmond, Potential Causes and Implications of the Rise in Long-Term Unemployment, September 2011)
Causes of Long-term Unemployment:
The two causes of long-term unemployment are cyclical unemployment and structural unemployment. Cyclical unemployment is usually itself caused by a recession. Structural unemployment occurs when workers' skills no longer meet the needs of the job market.
Long-term, cyclical and structural unemployment feed off of each other. A recession causes a massive rise in cyclical unemployment. Those that can't find jobs become long-term unemployed. If out of work long enough, their skills become outdated. In time, this contributes to structural unemployment. These unemployed have less money to spend, reducing consumer demand. This slows economic growth, leading to more cyclical unemployment.
Many say there are three other reasons for long-term unemployment: welfare, unemployment benefits and unions. These government assistance programs requires recipients look for work. This inflates unemployment statistics by .5%-.8%, because they may not really be actively looking and really shouldn't be considered part of the labor force. Benefits may encourage people to hold out for better paying jobs, further extending unemployment.
Unionization creates classical unemployment by forcing companies to offer higher wages than they normally would. These companies must lay off workers to maintain budget and profit goals. These workers may only have skills for this industry, and may be unwilling to take lower wage jobs. This can result in structural, and ultimately long-term, unemployment. (Source: Lawrence H. Summers, "Unemployment" The Concise Encyclopedia of Economics, 2008, Library of Economics and Liberty.)
Effects of Long-term Unemployment:
Obviously, being unemployed for six months to a year will strain personal finances. However, a Pew Research study found the recession affected the long-term unemployed worse than others in the areas of personal relationships, career plans and self-confidence. Specifically, the long-term unemployed reported:
- More than half (56%) saw their income decline, compared to 42% of the short-term unemployed and 26% of those who kept their job.
- Nearly half (46%) experienced strained family relations, compared with 39% of those who weren't unemployed as long, and 43% lost close friendships.
- Almost one in four (38%) lost self-respect, and 24% sought professional help for depression, compared with 29% and 10% of the short-term unemployed.
- The recession has had a "big impact" on their ability to achieve career goals for 43% of them, compared to 28% of their short-term peers.
- More than 70% say they changed careers. Nearly a third (29%) became underemployed, with lower pay and benefits than the one they had. Not surprisingly, they became very pessimistic about their chances of finding a good job. Only 16% of the short-term unemployed were worse off.(Source: Rich Morin and Rakesh Kochhar, Pew Research Center, The Impact of Long-Term Unemployment, July 22, 2010
Long-term Unemployment Benefit Extensions:
The long-term unemployed are assisted in their job search efforts by federal unemployment benefits extensions. These extensions were approved in 2009, with the American Recovery and Reinvestment Act, and have been reauthorized every year since then. They provide the long-term unemployed with up to 99 weeks of unemployment checks. This is a great boost to help support them until they can find decent jobs. Without these extensions, they would have to take any job they could, certainly leading to underemployment. This might preclude them from ever catching up, as their skills became more outdated.
However, unemployment benefits only help those who were laid off. Some employers fire workers for cause, or ask workers to resign in return for a severance package, so they don't have to pay benefits. Workers who quit, part-time workers, the self-employed, and students or mothers just entering the work force also aren't eligible for benefits.
Not all of those eligible for benefits will receive the entire 99 weeks. They've got to live in a state that meets a minimum unemployment rate.
Long-term Unemployment Rate:
Fortunately, the long-term unemployment rate is easy to calculate because the BLS breaks out the statistics for you each month in the Employment Situation Summary. The number of people who have been unemployed for 27 weeks or more is given in Table A-12. The BLS conveniently calculates what percent they make up of the total unemployed. This table gives you the data for the past three months, seasonally adjusted. It also allows you to compare the past two months, and year-over-year, not seasonally adjusted. Article updated June 15, 2014