Why Long-Term High Unemployment Is Bad. Very Bad.

/ Jim Luke

First, let’s review what’s happened with unemployment in the U.S. during this depression Great Recession.  It’s the red line that is most disturbing – the % of labor force that is still looking for work after being unemployed for over 6 months. As the graph shows, this is new stuff.  Well actually it has happened before – in the Great Depression of the 1930’s.

An update by request …

Unemployment Duration Click on graph for larger image.

This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

Note: The BLS reports 15+ weeks, so the 15 to 26 weeks number was calculated.

In July 2010, the number of unemployed for 27 weeks or more declined slightly to 6.572 million (seasonally adjusted) from 6.751 million in June. It is possible that the number of long term unemployed has peaked, but it is still very difficult for these people to find a job – and this is a very serious employment issue.

The less than 5 weeks category increased in July and is now at the highest level since January – and that is concerning.

Now let’s consider the consequences if this continues, as looks likely, for another 5-10 years or even longer. Let’s consider Japan which has already experienced what is nearing two “lost decades”. In particular the new job opportunities have been missing for young entry workers.  It’s not pretty.  An increasingly two-class society.  Large numbers of young (in their 20’s and 30’s) people who never leave home.  Increased crime and social tensions:

What happens to a generation of young people when:

  • They are told to work hard and go to college, yet after graduating they find few permanent job opportunities?
  • Many of the jobs that are available are part-time, temporary or contract labor?
  • These insecure jobs pay one-third of what their fathers earned?
  • The low pay makes living at home the only viable option?
  • Poor economic conditions persist for 10, 15 and 20 years in a row?

For an answer, turn to Japan. The world’s second-largest economy has stagnated in just this fashion for almost 20 years, and the consequences for the “lost generations” that have come of age in the “lost decades” have been dire. In many ways, Japan’s social conventions are fraying under the relentless pressure of an economy in
seemingly permanent decline.