The Societal Impact of Long-Term Unemployment

Schmidt5 imageIt’s no secret that unemployment is a big problem in today’s society.  The current US unemployment rate is at 7.9%, and more than 11 million Americans are currently receiving unemployment benefits.  But behind this staggering unemployment rate looms an even bigger problem—the number of Americans who are facing long-term employment has reached an unprecedented high.  The long-term unemployed, defined here as those jobless for more than six months, account for 40.6% of the unemployed.  In fact, in the 11 recessions since WWII, though unemployment has reached 9% in three of them, only in the most recent recession did the rate of long-term unemployment exceed 3%, peaking at 4.5% in April 2010.  And in order to solve the issue of unemployment in our country we must first understand the reasons behind this excessive long-term unemployment rate and the ways in which it impacts those affected.

The more straightforward problems associated with long-term unemployment are those which impede a person’s ability to get a job and earn a living comparable to their experience and education.  A workers’ success at finding a job tends to decrease the longer she is unemployed.  This then perpetuates a cycle whereby the longer she is out of a job, the less likely she will be to find one.  One reason for this could be that those who have skills in demand are re-employed within a short period of time,  Those who face chronic unemployment simply lack the skills that employers value.

 

Another potential explanation is a type of hiring bias in which employers will discriminate against applicants who have been unemployed for a long period of time.  Many employers will either impose a categorical prohibition on hiring the long-term unemployed or they will just “prefer” the candidate who has been unemployed for the shortest amount of time.  They will often just assume that there is a reason relating to the applicant’s performance, personality, or work ethic that has caused the long-term unemployment.  They will rarely expend the effort to dig deeper—the person with the shortest unemployment is simply the least problematic candidate.  And to compound both of the above factors, the long-term unemployed become increasingly discouraged.  As self-doubt grows, it is natural for people to spend much less time on their job search, although naturally this decreases their chances of finding a job.

Being among the long-term unemployed can be a considerable drain on the resources a person has saved, on top of the lack of revenue coming in.  Moreover, long-term unemployment can also be a huge career setback that can set the stage for a lifetime of lower salaries.  The reality is that after a certain point in their search, people just want a job, regardless of whether they are making the same amount that they were making in their previous job.  They are often forced to settle for much less than their education and experience would predict.  On average, long-term unemployment will actually reduce someone’s income 3.4% when they finally find a job, and that reduction in income can follow them for decades.

Workers aged 55 and older are disproportionately plagued by the increased rate of long-term unemployment.  Although the unemployment rate for older workers is less than the national average of unemployment, those who are unemployed must seek work for an average of 51 weeks, compared to the 37 weeks for the population as a whole.  Employers are looking for cheap labor, which is much easier to find in younger applicants.  Additionally, they are looking to avoid the potentially higher health care costs associated with older applicants.

In fact, some employers actively prohibit the hiring of many applicants over a certain age, an illegal form of age discrimination.  Also, when those over the age of 55 do get a job, they face much larger pay cuts than their younger counterparts, on average making only 85% of their former salaries.

We must make society aware of long-term unemployment as a public issue.  Without knowing that a problem exists, nothing can be done to remedy it.  And there are a couple of things that can be done to remedy the problem.  Any policy which increases the demand for work would have a positive impact on the long-term unemployed.  The most effective way to do this would be to increase public and private spending, which was the theory behind the stimulus package.  However, right now many voters and policy makers are opposed to any additional stimulus that would increase the debt.

Another way to minimize the problem is to provide education and training to those who have little.  In this way workers would be gaining the skills that are valued by employers without the threat of a loss of income that traditionally accompanies higher education, since most of the people are unemployed anyway.

The most viable solution is to make the long-term unemployed cheaper to hire.  A narrowly-targeted hiring subsidy might do the job, although it has the potential to label the long-term unemployed as disadvantaged, and employers may shy away from this label.  The alternative would be a non-targeted hiring subsidy, which, though it may increase the problem of employers choosing to hire the short-term unemployed over the long-term, will increase overall hiring which will hopefully trickle down to the long-term unemployed.  In any event, something needs to be done, because refusing to acknowledge the societal impact of long-term unemployment can only exacerbate the economic problem for all.

*Long-term unemployment can also affect physical, mental, and emotional well-being.  For more information on these societal effects of long-term unemployment, take a look at a 2010 Pew study titled, “Lost Income, Lost Friends – and Loss of Self-Respect.”

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