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May 22, 2009
Add this to the to-do list in this deep, prolonged recession: prevent the rising number of workers who have been without jobs for six months or more from dropping out of the labor force forever.
The U.S. unemployment rate is at 8.9% and rising. At last tally, 3.7 million people, more than a quarter of the officially unemployed, had been out of work for more than six months -- and that counts only those who said they had looked for work in the week when the Bureau of Labor Statistics knocked. An additional 2.1 million weren't counted unemployed but were deemed by the BLS to be "marginally attached" to the work force; they had looked for a job during the past 12 months but aren't looking now because there's no point or because they were ill or for some other reason.
Economic forecasters expect the unemployment rate to remain high for the next year or two as the economy regains its strength only slowly. That means a growing band of American workers will go without a paycheck for so long that many will stop thinking of themselves as workers, a development that could hurt them and the overall economy.
The longer a person is out of work, the more likely he or she will never go back to work, a problem long in evidence in Europe. Skills atrophy. Employers grow skeptical about hiring someone with long spells of unemployment, particularly when they have other applicants from which to choose.
"There is probably less stigma to being unemployed now -- losing your job when every one else is," says Lawrence Katz, a Harvard University labor economist. "But when people are out of work for a long time, they become discouraged and stop thinking of themselves as in the labor force. Keeping them connected so they think like they're still workers is important," he adds.
The plight of the long-term unemployed was a worry even in good times, more so now that their ranks are growing. About 46% of all workers collecting state unemployment benefits already have hit the standard 26-week maximum without finding work, the highest level since 1972, when the data were first reported, according to the National Employment Law Project.
The federal government has responded by extending unemployment benefits to as many as 33 additional weeks, depending on the state. Making unemployment benefits too generous can discourage the jobless unemployed from looking for work aggressively or taking a less-than-perfect job -- hence prolonging unemployment. But at a time when jobs are scarce, an unemployment-compensation check and the nudge to look for work can help an unemployed worker think of his or her condition as temporary.
President Barack Obama is pushing states to encourage those collecting jobless benefits to enroll in community colleges or other training programs in lieu of looking for jobs that don't exist, and he has changed the federal student-aid rules to make Pell grants more available to the unemployed. The administration is pondering ways to enlist the unemployed to do community service as well.
It's not only compassion. For lots of workers, particularly those over 40, the alternative to looking for work is applying for Social Security disability benefits -- and dropping out of the labor force forever.
Of course, many of those collecting disability truly can't work. But for workers with minor disabilities who could and, in many cases, would rather work, the Social Security benefits become the only way to pay the rent. Applications for Social Security disability in April were 20% higher than a year earlier. The application process can be arduous, often taking two years. Even among those whose applications are ultimately rejected, 60% never go back to work, says David Autor, a Massachusetts Institute of Technology economist who has studied disability trends.
At times like these, Mr. Autor says, "People are going to be taking a hiatus. What we want to do is, one, support them so they don't think they should give up this whole work thing and go on disability and, two, we want to give them things to do -- to potentially build skills and certainly diminish the pleasure of leisure a bit."
One approach is to tweak the disability benefit to encourage recipients, more than current rules do, to think of the benefit as a temporary, rather than an all-or-nothing, permanent condition. At a recent town-hall meeting, Mr. Obama was asked about lifting limits on the wages a person on disability can earn. The president's answer suggested he'd been briefed recently: "Social Security disability has gone up significantly during this recession. In principle...I would like to raise the income limits to encourage people to become more self-sufficient. In practice, it costs money on the front end, even though long term it may save money." But he made no promises: "What I'd like to do is examine this in the broader context of Social Security reform and Medicare/Medicaid reform," he said.
Recessions as severe as the current one can scar individual workers and an entire economy for a long time after the recovery arrives. Preventing that is impossible. Minimizing it is wise.
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