Advancing a Free Society

The Long-Term Unemployed: Consequences and Possible Cures

Monday, March 15, 2010

Greater unemployment is a casualty of every recession, and the so-called Great Recession is clearly no exception. The unemployment rate grew from under 5% to just over 10% at its peak, and has fallen during the past few months a little to 9.7%. Most forecasters are predicting only a gradual further decline in the unemployment rate during 2010, and some even predict that this rate will increase before it continues to fall again. Aside from its level, the most disturbing feature of the unemployed is its composition since many of them have been without a regular job for over six months.

Men and women who are unemployed for a relatively short time-say for no more than a few months- create relatively few problems for themselves or the economy. They can usually finance their consumption while unemployed- such as on housing, food, and other basic expenses- out of their own savings, unemployment compensation payments, and from loans from family and friends. The long-term unemployed are the major problem. And the fraction of the unemployed who have been out of work for six months or more increased greatly during the Great Recession to reach over 40% of the unemployed in February 2010. The average period of unemployment for these long -term unemployed is about 7 months. Only a year earlier, in February 2009, the long-term unemployed constituted only 22% of the total number of unemployed persons, and even that percent was up from its share of the unemployed at the beginning of the recession in December 2007.

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