Pethokoukis, Economics, U.S. Economy

America’s broken jobs machine and the long-term unemployed

051313jobs

When an economy is humming, there are lots of job openings and low unemployment. When the economy is malfunctioning, there are few openings and unemployment is high. The regular relationship between job openings and unemployment is called the Beveridge Curve. If the curve shifts outward — see the above chart — it means that a given level of job openings is associated with higher unemployment. AEI’s Kevin Hassett:

It has been almost four years since the end of the recent recession, but the U.S. has yet to return to its previous levels of unemployment. The shift in the Beveridge curve suggests that it may never do so. The points labeled A and B illustrate why. In February 2013, the job-openings rate (unfilled jobs as a percentage of total jobs) was 2.8, a rate that would have corresponded with an unemployment rate of about 5.2% on the Beveridge curve from 2001 through August 2009. The unemployment rate in February, however, was 7.7%—almost two and a half points higher.

Hassett argues the shift is mainly explained by a) the more than doubling of long-term unemployment from pre-recession levels, and b) the now-documented reluctance of business to hire folks who’ve been out of work for more than six months.

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His speculation also is supported by a Boston Fed study from late last year which suggests a tale of two job markets:

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.

Here is the rather normal-looking Beveridge Curve for the short-term unemployed:

120312bevcurve1

And the not-so-normal looking curve for longer-term unemployed:

120312bevcurve2

As for Hassett’s explanation, it seems particularly compelling when you note the Boston Fed really didn’t have a solid one at the time:

One reason why the Beveridge curve relationship for the long-term unemployed has apparently shifted may be a change in the desirability of the long-term unemployed to employers. It is possible that the long-term unemployed increasingly comprise workers whose skills are not suited to available jobs.

However, if this is the case why do we not see some outward shift in the short-term relationship as well? Further, the mismatch hypothesis is called into question by the fact that the vacancy-unemployment relationship has shifted in all industries, while in the 1970s only the workers who were previously employed in blue-collar industries were affected.

Another possibility is that 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.

This seems to be a more likely explanation, although if a drop in search intensity is due only to the difficulty of finding jobs, it again raises the question why we would not see that phenomenon at shorter durations as well.

5 thoughts on “America’s broken jobs machine and the long-term unemployed

  1. While I’m not suggesting that long-term unemployment is anything but brutal, these studies are pretty misleading.

    The reason the Beveridge curve has shifted out is that the job-finding rate is down – people are spending more time in unemployment. But the important thing is that re-employment rates remained depressed across ALL durations of unemployment, not just among the long-term.

    The reason that the Beveridge curve has only shifted out for the long-term unemployed is that the seperation rate is lower than we would expect for the given level of job-vacancies. The Beveridge curve has shifted inward at short-term durations of unemployment, not because they are doing so well, but because layoffs and quits are so low. Plot the Beveridge curve at the different categories of duration and you see the curve progressively shifting outwards from >4 weeks to 5-14 weeks to 15-26 weeks, to full +27 weeks.

    The take-away is that even if the long-term unemployed have become hopelessly unemployable, an improvement of re-employment rates of the short-term unemployed would be enough to deliver significant labor market improvement.

  2. The good news is that long-term unemployment is relatively evenly spread except for a few correlations (inversely proportional to education, higher among blacks and construction workers.) shttp://www.frbsf.org/publications/economics/letter/2013/el2013-03.html

    This author suggests that sector recoveries may reverse the trend, noting progress on that front in manufacturing. Surely, a healthy construction industry would make a big difference in jobless rates.

    Wide distribution is good news, assuming some/much of the problem is temporary. Given a smaller chronic problem, you can target the jobless with multiple strikes, such as education, race or age.

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