The Difficult Problem of the Unemployed

Unemployment in the US stood at 9.6 percent last month. That was considerably higher than expected when the fledgling Obama administration economic team projected in January 2009 that unemployment would go no higher than 8 percent. The number of underemployed in the US -- defined as those unemployed plus those working part-time but wanting full-time work -- is even higher. Gallup polling estimates of underemployment have ranged between 18 and 20 percent throughout 2010.

With private employment increasing --albeit tepidly -- through most of this year, the picture seems finally to be improving. Slowly. The question I'm struggling with today is what about the record number of the long-term unemployed? Of an estimated 15 million unemployed in the US, an estimated 7 million have been unemployed for more than six months, nearly 5 million for more than a year, and more than 1 million for two years. Long-term unemployment is now at the highest levels since the government started keeping unemployment statistics in 1948.

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The problem of long-term unemployment is made much worse because of the reality that many good jobs are simply not coming back, and declines in home prices make it difficult to move to where the jobs are for many of the unemployed. Add to that, crushing consumer debt and the flight of small business capital, and you have a veritable "perfect storm" that has resulted in chronic, long-term joblessness.

I just watched a CNN report that included an intriguing interview with an entrepreneur, a paper tube manufacturer, in Wayne, NJ. He was asked what the government could do to help small business expand operations and hire more workers. His response was that they could limit the number of unemployment benefit extensions available to the unemployed and then recounted his frustrating experience of trying for six months to hire workers. He complained that potential employees come in for interviews only to have him sign off on the required state form indicating that they had applied for work.

Congress has extended unemployment benefits to the long-term unemployed for up to 99 weeks in some states, and there is legislation currently before Congress that would extend unemployment even longer, to 119 weeks -- more than 2 years. At least in some locations, could long-term unemployment benefits be contributing to the problem of the long-term unemployed? Perhaps.

The solution to unemployment is a complex one. High unemployment and tight credit reduce the demand for goods and services. And with demand for many goods and services down, employers are hesitant to invest capital and hire new workers. Legislation passed or on track for passage by the Congress includes unemployment benefits extensions in states with high unemployment, small business loans and improved small business access to capital, and investment tax credits that should promote small business investments in plant and equipment. Ben Bernanke, chairman of the Federal Reserve, noted in a July 2010 speech that over the past two years about $40 billion worth of capital has been withdrawn from US small businesses, and fixing the problem should be "front and center among our current policy challenges."

Unfortunately, because of the severity of the recession that officially began in 2007, and accelerated through 2008 and into 2009, the bottom line is that economic recovery proceeds at a pace that will only very slowly help put laid off workers back in jobs. It's just going to take time.

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