Early signals point to unemployment trouble

In January, I wrote a post that supported shortening the unemployment benefits for the long-term unemployed. I used data from North Carolina to show a 1.4% drop in the unemployment rate in just six months. Unfortunately, analytics website Five Thirty Eight published an article from their data lab today that tells a different story.

Since the end of the Emergency Unemployment Compensation program cut unemployment benefits for many Americans three months ago, those whose checks have stopped coming still aren’t finding jobs. In my own analysis of the North Carolina data, I noted that one potential red flag was the high percentage (3/4 of a percent) who dropped out of the workforce altogether. The unemployed who become discouraged and quit trying to find work cause the biggest flaw with the unemployment measure, causing a counter-cyclical movement against the unemployment rate. That drop-out red flag seems to be a larger driver of the overall rate than we’d hoped.

“The number is much smaller today not because the long-term unemployed, as these Americans are defined by the Labor Department, have found jobs, but because they have given up looking for work.”
-Ben Casselman, Five Thirty Eight

These data’s prognosis isn’t good. In essence, Five Thirty Eight’s data lab has found that after six months, your chances of finding a permanent job are close to “hopeless.” Those who are finding employment are accepting part-time or temporary work.

Casselman also has an interesting take on how policy will react in the coming years and in the next recession. While there have been mixed reviews about how to interpret the Fed’s unemployment target, it seems like it will continue to serve as an indicator to some extent. The Fed’s 6.5% threshold seemingly has been reached, and scaling back stimulation into the economy has already garnered speculation for the first interest rate increases in years. For those who have dropped out of the workforce or yet to find employment, the future looks bleak.

“The Fed has been pulling back on its efforts to stimulate the economy, despite continued high unemployment and low inflation, suggesting it thinks the long-term unemployed are gone for good.”
-Casselman

It’s hard to pinpoint how to manage the long-term employment situation in America. On one hand, it isn’t possible to continuing paying out benefits forever to millions without jobs. Yet, this three month data shows hints that it isn’t a lack of effort preventing Americans from the workforce. The chances of finding work quickly diminish after six months unemployed, so the first step is ramping up the efforts to get laid-off workers going right out of the gate. Additionally, hiring long-term unemployed to government jobs such as infrastructure projects or creating easier access to community volunteering opportunities can help prospective employees keep their resume fresh and full of work experiences.

One thought on “Early signals point to unemployment trouble

  1. mrosidi

    Nice post. I like your suggestion to keep their resume fresh and full of work experiences. I agree that one important thing to do is to keep their motivation to find job alive and your point suit well here.

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