Short-Term Unemployment is Low, Long-Term Unemployment is High

One of the most interesting, and disturbing, aspects of the sluggish economic recovery is the widening gap between the long-term unemployed and everyone else. Recently, Josh Mitchell of the Urban Institute released a report on the long-term unemployed which found that of the 12.2 million people unemployed in December 2012, 39 percent, or 4.7 million, have been actively searching for a job for 27 weeks or more. Short-term unemployment, meanwhile, is now at a lower level than it was in 2007. Scott Sumner notes that new unemployment claims are at what he describes as “shockingly low levels“:

I’m not going to redraw the graph, but with today’s numbers (308,000 on the 4 week average) we have fallen below the 0.1% level, meaning that fewer than 1/1000ths of Americans now file for unemployment comp each week. That’s not just boom conditions, it’s peak of boom conditions. The only other times this occurred since 1969 (when unemployment was 3.5%) were just a few weeks at the peak of the 2000 tech boom and a few weeks at the peak of the 2006 housing boom. In other words, the puzzle is now even greater than 6 weeks ago, as the unemployment rate is still at recession levels (7.3%.) Something very weird is going on in the labor markets.

I don’t have any good ideas. Perhaps employers are reluctant to add workers for some reason (Obamacare?) and instead work them overtime more. Then when demand falls instead of laying off workers, they cut overtime. But I don’t recall the average workweek numbers being all that unusual.

My hunch is that these new numbers portend further declines in the unemployment rate in the months ahead. Which is also a puzzle given that RGDP growth is about 2% in recent years.

And Virginia Postrel riffs on Walmart’s decision to increase employment levels. One hopes that Sumner is right and we’re heading for further declines in unemployment. The reason I’m convinced that we need something like Michael Strain’s new jobs agenda is that the long-term unemployed seem to pose particularly difficult challenges, e.g., I suspect that at least some workers who’ve been unemployed for 27 weeks or more would profit from relocation, but this is extremely difficult to do when you have limited resources.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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