Unemployment Scars Likely to Last for Years


The U.S. job market is showing signs of a sustained recovery. But the country’s prolonged struggle with unemployment will leave scars that are likely to remain for years, if not generations.

The latest labor-market snapshot, out Friday, gave cause for continued, if tepid, optimism. U.S. employers added 200,000 jobs in December, and the unemployment rate ticked down to 8.5%, its lowest level since early 2009.

But economists gathered here for the American Economic Association’s annual convention took a longer and generally dimmer view. Even if recent progress continues, the recession already has had a lasting effect on a generation of workers. Worse, the crisis has laid bare problems in the U.S. labor market that won’t quickly recover when the economy eventually rebounds. And the longer that unemployment remains high, the greater the risk that it will create structural problems that will endure.

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The economists here, mostly academics, are studying the causes and effects of the jobs crisis from different angles, and they frequently disagree. Nonetheless, a few common themes emerge.

Long-term unemployment may be a bigger problem than high unemployment. Americans have been understandably frustrated by the slow pace of job growth. But economists say much of that slowness is explained by the weak economic growth since the recession ended more than two years ago. In that sense, the problem isn’t the “jobless recovery” but rather that the recovery itself has been so weak. If the recovery gains steam—as some economists believe has been happening in recent months—the growth in jobs should pick up as well.Unprecedented rates of long-term unemployment could threaten the economy’s recent gains. Some 5.6 million Americans have been out of work at least six months, 3.9 million of them for a year or more. Research shows that the longer people are unemployed, the less likely they are to find jobs. Economists aren’t sure why—to what degree it’s because workers’ skills deteriorate, or because they find ways to cope and give up looking for work, or whether the stigma of being unemployed for so long makes companies unlikely to hire them—but the effect is the same: Many of the people out of work the longest likely will never work again.

The risk, economists say, is that the U.S. will develop an underclass of semipermanently unemployed workers, with severe consequences for productivity, public finances and even social stability. Europe, which faced a similar problem in the 1980s, is still dealing with the consequences.

“We know that once you get into that type of situation it’s very hard to get out,” said Steven Davis, a professor at the University of Chicago’s Booth School of Business.


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Unemployment Scars Likely to Last for Years

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