The U.S. Long-Term Unemployment Crisis Stumps Economists

While the unemployment rate has been dropping, the U.S. is still facing a serious problem with long-term unemployment.  Long-term unemployment was 3% in January, which is triple the 2001-2007 average, whereas short-term unemployment, which was 4.9% in January, was only 0.7% above its 2001-2007 average.  The level of short-term unemployment, therefore, is starting to return to normal levels, while the level of long-term unemployment remains higher than normal.  Economists are struggling to understand the cause of this problem, considering generous unemployment benefits, erosion of skills, and discrimination by employers as possible reasons.  Peter Diamond, an economist at the Massachusetts Institute of Technology, goes as far as to argue that long-term unemployment poses a larger problem than the national debt. Rand Ghayad, a Ph.D. candidate in economics at Northeastern University, sent out fictitious resumes to employers and found that the resumes of those out of work more than six months had a much harder time attracting employment offers.

This trend of high long-term unemployment should begin to fade as more jobs are created.  When employers are less picky with job offers, the long-term unemployed should have a better chance than they do today.  The only way this can be made possible is with economic growth.  Nonetheless, the fact that 38% of the unemployed have been out of work for six months or more is discouraging.

Written by: Constantine Kostikas

Source: Businessweek.com

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