Article 43


Friday, June 01, 2012

The Truth About Long-Term Unemployment In America Part III


Why Everyone Suffers When Job Seekers Give Up
When workers drop out of the labor force, it affects more than the workers themselves.

By Liz Wolgemuth
US News
July 14, 2010

Among the surprises in last month’s job report was the downward slide in the unemployment rate from 9.7 percent to 9.5 percent. Most of the time, high unemployment rates are bad and low unemployment rates are better. But when the percentage of out-of-work Americans dipped in June, it was driven largely by a 652,000 drop in the labor force.

Some job seekers might see this, on its face, as a good thingfewer labor force participants means less competition for jobs. The truth is much less helpful. When able workers drop out of the job market, their households make do with less income, and their long-term financial health may be threatened, as savings are depleted. The aggregate economy suffers, too, as it chugs its way out of recession - it loses their contributions as workers and their buying power as consumers.

The number of discouraged workers has skyrocketed over the past year, as job-cutting has slowed but hiring has remained sluggish. “Discouraged" is a Labor Department label for unemployed workers who have looked for jobs over the past year but not in the past month because they’ve lost hope of finding anything. Last month, there were 1.2 million discouraged workers, some 52 percent more than the 793,000 discouraged workers in June 2009. Last month, the number of discouraged male workers was the same as the total number of discouraged workers - male and female - in the same month a year ago.

The growth in discouraged workers is clearly correlated with the high numbers of long-term unemployed - as people who have spent a year or two looking for work unsuccessfully begin to lose the will to keep searching. With five job seekers for every job opening, and some jobs not likely ever returning, the search has been incredibly difficult for many. This is worrying, says Sung Won Sohn, an economist at Smith School of Business and Economics. “If you look at the total unemployment, about 50 percent are long-term unemployed ... and I suspect that a lot of these people are just dropping out of the labor force, saying ‘this is just a waste of time,’” Sohn says. “It’s not only an economic problem but a social problem as well. Many of these people are very able - they’re in their forties, fifties, they still have quite a few years left in them.”

Many workers who were encouraged to keep searching for jobs through the requirements of unemployment benefits have lost that incentive as Congress has allowed federal benefits to expire. “An important argument for extending [unemployment] benefits is that UI keeps people looking for work so as to head off their potentially permanent withdrawal from the labor force,” says David Autor, a labor economist at MIT.

The negative effects of workers dropping out extend beyond the workers themselves. “You have fewer family members working, which means families have less income,” says Heather Boushey, senior economist at the Center for American Progress. When households have less income for prolonged periods, they may rip through their retirement savings, or be unable to make mortgage or rent payments. The stress and ill-health associated with long-term unemployment gets passed on to other household members, particularly children. With stimulus-backed COBRA subsidies going away, some households may be going without healthcare coverage.

The broader economy and society suffers when workers become discouraged. Younger workers, blacks, and Hispanics tend to be overrepresented in the discouraged-worker category, according to the Labor Department. For one thing, there’s a loss of human capital, Boushey says. “We have a relatively highly educated labor force. Many of the folks who are dropping out do have an education and that’s an investment that we as a society make, and in many ways subsidize, through the public school system and then through community colleges and public universities,” Boushey says. “For that investment to really pay off, you want people to participate to the extent that they can, and want to, in the labor market.”

“Discouraged workers can’t help the economy move toward recovery, as they generally can’t contribute to the aggregate demand without generating income, paying much in taxes, or consuming much”, Autor says. Over the longer term, some discouraged workers will never return to the labor force and may depend on financial support from family members, or public programs such as federal disability benefits or Medicaid. “In addition to the losses these individuals suffer as a result of not remaining active in the labor market, their withdrawal is also an expensive proposition for the public,” Autor says. “Prime age adults who exit the labor force permanently will generally receive considerably more in public benefits and transfer income than they will pay in taxes. Thus, in net, their withdrawal increases the dependency ratio, that is the ratio of non-workers to workers.”

The discouraged workers of this recession may, by and large, be short-termers, jumping back into the job market as soon as hiring really improves. Others may make new plans. Diane Lim Rogers, chief economist at the Concord Coalition and blogger at, says that some of workers’ discouragement right now is “probably just short term and will recover, but some workers have probably had enough of this downturn and their bad labor market experiences that they will start pursuing other longer-term plans,” such as going back to school.

Retraining programs will likely be key to getting discouraged workers back into the workforce. “What’s worrying is you have this sea of unemployed people who seem to not have the right skill sets for where jobs may be being created in this economy,” says Joshua Shapiro, chief U.S. economist at MFR, an economic consulting firm in New York.



The Real Unemployment Rate

By Bruce Walker
May 28, 2012

Mark Twain once noted three varieties of lies in public life: “Lies, damn lies, and statistics.” In the area of macroeconomics and government, Twain could not have been more right. The statistics kept by the U.S. Bureau of Labor Statistics include “unemployment,” and this number counts those Americans who are actively seeking employment. As many commentators have noted, when times are really tough, those Americans who have simply stopped looking for a job drop off the statistics, making it artificially appear that the unemployment rate has dropped.

The nominal unemployment rate is still high, but the real jaw-dropping fact is the number of working-age Americans who are not working. Today that is 100,000,000 Americans out of a total population of about 310,000,000. Demographically, about 80,000,000 Americans are minors and about 40,000,000 are age 65 or older. That leaves approximately 190,000,000 Americans who are adults of working age. About half of those do not have a full-time job.

The situation, according to the very statistics of the Bureau of Labor Statistics, show an increasingly dismal picture, when the number of people who could be working but are not is counted. In April 2011, the number listed in those statistics as unemployed was 13.8 million. That number actually dropped in February 2012 to 12.8 million, then to 12.7 million in March and 12.5 million in April. The unemployment rate over those four months also declined: 9.0 percent in April 2011, 8.3 percent in February 2012, 8.2 percent in March 2012, and 8.1 percent in April 2012.

When those “Not in the labor force” are adding to “those Unemployed,” then those who are not working is growing: 99.5 million in April 2011, 100.3 million in February 2012, 100.5 million in March 2012, and 100.9 million in April 2012. When counting both those “Not in the labor force” (though in the age in which most Americans work) and ‘Unemployed’ as a single group, then those who are not working, but are in the age group in which Americans normally work, has remained steady and high: 41.6 percent in April 2011, 41.5 percent in February 2012, 41.5 percent in March 2012, and 41.6 percent in April 2012.

Polls shows that Americans are feeling the pinch of hard economic times and of adult children forced to live in their parents basements to keep body and soul together. The value of homes continues to remain very low, and homes have historically been the primary investment of most American families. Student loans these days are often not repaid for decades after students graduate from college. All of this strongly suggests that large numbers of Americans want and need more income and that they are looking for jobs. And yet the 42 percent of Americans who are of working age are not working. Despite trillions of dollars spent on “shovel-ready” jobs, the jobs are conspicuous by their absence.


Posted by Elvis on 06/01/12 •
Section Dealing with Layoff • Section Dying America
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