When trying to determine if high unemployment is being caused by weak demand or by a mismatch between jobs and the skills of job seekers, economists look at the Beveridge Curve. It represents the relationship between the unemployment rate and the job vacancy rate. On a simple chart, vacancies are on the vertical axis and unemployment is on the horizontal.
If the curve shifts outward, it suggests that a given level of job openings is associated with higher and higher unemployment. And this, according to the Boston Fed, “may be an indication of problems of structural mismatch in the labor market leading to an increase in the lowest unemployment rate that can be maintained without increasing inflation (the NAIRU or nonaccelerating inflation rate of unemployment). Such a change in the vacancy-unemployment relationship occurred once in the 1970s and persisted through the late 1980s, and we have recently observed a similar change.”
Now the gently sloping Beveridge Curve for shorter-term unemployed looks pretty normal, as jobs become available, they are steadily filled:
But the one for longer-term unemployed shows an outward shift, where jobs opening are not associated with lower levels of unemployment:
Again, the Boston Fed:
While the Beveridge curve for all workers appears to have shifted outward starting in 2009, data on vacancy and unemployment rates for individuals who have been unemployed for fewer than 27 weeks reveal the usual downward-sloping relationship with no sign of any outward shift. … In contrast, we see a large counterclockwise movement when the vacancy rate is plotted versus the unemployment rate for those unemployed for more than 26 weeks. Taken together, these observations suggest that the short-term unemployed have been benefiting more than the long-term unemployed from increases in vacancies during the recovery.
So what’s the problem with job market for the longer-term unemployed? Perhaps the long-term unemployed are less desirable as workers because their skills don’t fit the available jobs. But if that were the case, the Boston Fed would expect to see some outward shift in the short-term relationship, too. Plus, the vacancy-unemployment relationship has shifted in all industries.
But here is another possibility: “The long-term unemployed in this recession may be searching less intensively—either because jobs are much harder to find or because of the availability of unprecedented amounts and durations of unemployment benefits.”
We need to take that last point seriously given both the lengthy extension of unemployment insurance and probable shift of the unemployed into Social Security Disability Insurance. As Michael Barone writes in National Review, using the research of AEI’s Nick Eberstadt:
Between 1996 and 2011, the private sector generated 8.8 million new jobs, and 4.1 million people entered the disability rolls.
The ratio of disability cases to new jobs has been even worse during the sluggish recovery from the 2007–09 recession. Between January 2010 and December 2011, there were 1,730,000 new jobs and 790,000 new people collecting disability.
This is not just a matter of laid-off workers in their 50s or early 60s qualifying for disability in the years before they become eligible for Social Security old-age benefits.
In 2011, 15 percent of disability recipients were in their 30s or early 40s. Concludes Eberstadt, “Collecting disability is an increasingly important profession in America these days.”
Disability insurance is no longer a small program. The government transfers some $130 billion obtained from taxpayers or borrowed from purchasers of Treasury bonds to disability beneficiaries every year.
Not only are we hiding the true level of U.S. unemployment, but we also creating a class of revenue receivers rather than revenue generators — and an expanded dependency culture in America.