The Long-Term Unemployment Trap Could Get Worse

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Unemployment Benefits
Job seekers meet with employers at a January 2013 job fair in Sunrise, Fla. (AP Photo/J. Pat Carter)

The emergency support program for the long-term unemployed which was first enacted in 2008 could face big cuts with the start of the New Year, even though the recovery remains tepid and unemployment figures remain higher than at this point in any previous recession. And many experts are saying that further austerity would bring more bad news for the economy.

Chad Stone, chief economist at the Center for Budget and Policy Priorities — a think tank focused on policies to help low- and moderate-income Americans — writes, the “mainstream explanation for why unemployment is so high is that businesses still don’t have enough sales to justify hiring enough workers to restore normal levels of employment.” Failing to renew the Emergency Unemployment Compensation (EUC) program, which has been extended a number of times since 2008 to help those struggling during the Great Recession, will have the opposite effect of what is needed — Americans out-of-work for long periods will have even less to spend, which will further blunt the already-pretty-blunt recovery.

“With an unemployment rate of 7.3 percent, we need to raise the emergency unemployment insurance (UI) and push for extensions to 2014,” Gene Sperling, director of the White House’s National Economic Council, said at a public forum last week. Sperling claimed he “sees a good chance to get a new reform through Congress,” the MNI financial news service reported.

But right now, House Republicans have not shown much interest in coming to an agreement to extend the program. “The current EUC program already has served up about 10 times as many weeks of federal extended benefits as the most recent program that operated in the wake of the 2001 recession and terror attacks, and nearly six times as many weeks as the program that ran from 1991 through 1994,” said the House Ways and Means Committee chairman Dave Camp (R-MI) in a press release. “And despite Democrat claims that such spending on UI benefits is the ‘best stimulus,’ all this record-setting benefit spending has bought is the slowest recovery on record.”

Stone says that is an unfair characterization based on an analysis that puts the cart in front of the horse. “To be sure, EUC has lasted a lot longer, helped a lot more unemployed workers and paid out substantially more in benefits than the programs enacted in past recessions. But that’s because the blow to the economy and especially the labor market from the Great Recession was so much worse. In fact, without the consumer spending UI generated, the recession would have been even deeper and the recovery even slower, according to conventional economic analysis.”

Annie Lowry wrote in The New York Times this weekend that long-term unemployment is a trap that becomes more and more difficult to escape with each passing month. Since the Great Recession started, long-term joblessness is up 213 percent, and economists are unclear about whether faster growth will improve the situation. Many of the long-term unemployed have rusty job skills that will make re-entering the workforce tough, even if more jobs become available. Others have ruined credit ratings, which employers increasingly rely on to screen new hires. And unemployment carries a heavy stigma that keeps people out of work. “We don’t hire the unemployed,” a potential employer told Jenner Barrington-Ward, a 53-year-old college graduate who had worked steadily for 30 years before being unemployed for the past five.

Lowry writes:

[T]he slack economy remains the primary culprit behind all the pain in the labor market, economists say. “We’ve got to be doing everything we can,” said Professor Rothstein at Berkeley. “That means direct hiring”— with the government providing jobs — “employment tax credits, just about anything you could think of.”

But the government is now doing the opposite. The mandatory federal budget cuts known as sequestration took as much as 60 percent out of unemployment checks this summer and fall. And, as of this winter, the federal emergency program that extends the maximum number of weeks of jobless payments will end, though the White House is pushing to extend it again.

Some fear that it may already be too late to prevent long-term joblessness from permanently scarring the American work force and broader economy. International Monetary Fund researchers estimate that the level of structural unemployment has increased significantly since the recession. And striking new Federal Reserve research shows that the scars from the recession have knocked the economy off its long-term growth trend.

It’ll fall to Congress — specifically, to the House of Representatives — to determine whether unemployed Americans, and by extension all Americans, have a depressing New Year.

John Light blogs and works on multimedia projects for Moyers & Company. Before joining the Moyers team, he was a public radio producer. His work has been supported by grants from The Nation Institute Investigative Fund and the Alfred I. duPont-Columbia Awards, and has been included in ProPublica's #MuckReads collection. A New Jersey native, John studied history and film at Oberlin College and holds a master's degree in journalism from Columbia University. Follow John on Twitter @lighttweeting.
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  • Roland

    Why all the hand-wringing? The die is cast. Do we really need a tour guide as we circle the drain. No one has any cause for complaint; you voluntarily gave away any chance for s decent future for yourselves or your posterity. Now that the chickens are coming home, whining is most unseemly.
    Roland

  • Anonymous

    The long-term unemployed are, tragically, now subject to the very standards they, themselves, had set. Would it help to remind them of the “advice” they tossed at those who were pushed into poverty before them — all that stuff about pulling yourself up by the bootstraps, “any job is a good job,” “Just get up in the morning, work hard and play by all the rules,” and on and on. We all know the middle class has been getting phased out for years WHILE we’ve been in the process of shipping our jobs out, while implementing a nationwide, super-cheap workfare labor replacement system (whom did they think they’d be replacing, albeit at a fraction of the wages?). We, as a nation, decided to remove the safety net and then reach out to grab hold of the (slippery) trapeze.

  • Anonymous

    My daughter found herself in a similar situation. I can sympathize. By contrast, I was a factory worker and farmer. Those jobs are gone now, too. We have a tremendous surplus of (cheap, desperate) labor for the jobs that are still here. But every year, govt gives corporations massive handouts, always said to be “vital to job creation,” which corporations continue to use to build factories and offices outside the US, shipping out our jobs. Money is always found for that. This year, govt is taking food aid from the elderly, poor and disabled to cover some of those handouts.

  • Anonymous

    I can understand people being frightened. As someone who experienced homelessness and real hunger some years ago, I can say that their fear is justified. The thing about becoming poor is that this is when one gets a look at America’s face, behind the mask it wears for middle classers. It’s scary. We’ve been in the process of unprecedented upward wealth redistribution. The response from the “left” has merely been that of conducting a pep rally for the bourgeoisie, those still in the middle class.

  • Roland

    ” behind the mask it wears for middle classers”
    The mask is fitted by the media; we live in a Potemkin village.
    “It’s scary.”
    Sure, especially since all the victims think they are alone,
    “The response from the “left” has merely …”
    What do you mean by the left? Some lefties have been ready for revolution for each of the past fifty years. Of course, now it is too late.
    Roland

  • Roland

    Any earlier generation engulfed Washington before it got this bad. This time the plutocrats had the foresight to steal our gonads first.
    Rolsnd

  • Roland

    Hi John
    Roland

  • Roland

    Very good school? Harvard? Northwestern? Stanford? Otherwise, are you affluent? If not, you wasted your time and money.
    Roland

  • Roland

    Read the poem _The Hangman_. Same scenario.

    Roland

  • http://www.watermelonpunch.com/ watermelonpunch

    The heyday of the MBA was over pretty much by the time Lehman Bros collapsed. And even Felix Salmon had called it point blank halfway through 2009
    http://blogs.reuters.com/felix-salmon/2009/06/30/mba-rip/