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The Continuing Crisis of Long-Term Unemployment

As we gaze at today’s payroll report, it’s worth pointing out how government policies have improved the numbers in relative terms. Not by putting more people back to work, but by putting more people into the uncounted shadows:

During a press conference demanding unemployment insurance be part of a fiscal cliff deal, Chuck Schumer noted that last December, 5 million Americans relied on federal unemployment insurance, while only 2 million currently do so. “It’s working,” he said.

Sure, fewer people are on unemployment because more people have jobs, but another reason fewer people are on benefits is that Congress slashed the number of weeks available back in February.

When you lose your unemployment benefits, you don’t necessarily drop out of the labor force, but it certainly concentrates the mind. It leads to things like going back to school and living on loans, or other labor force-removing actions. So yes, this makes the numbers look a bit prettier, but it doesn’t really help the jobless so much as it actively harms them.

In reality, there’s much more at stake in the expiration in unemployment benefits than Schumer makes it out to be, particularly because of the persistent elevation in long-term unemployment. Long-term unemployment, new research shows, wears at individual skills and risks putting people into a hole in terms of their employment capabilities out of which they cannot pull themselves. This has a measurable effect on the long-run economic prospects of the country. If we have this permanent underclass that cannot get work, it keeps more and more people out of the economy, and reduces overall growth.

As Paul Krugman says today, we just cannot forget these people:

Yet there is a whole industry built around the promotion of deficit panic. Lavishly funded corporate groups keep hyping the danger of government debt and the urgency of deficit reduction now now now — except that these same groups are suddenly warning against too much deficit reduction. No wonder the public is confused […]

When you see numbers like those, bear in mind that we’re looking at millions of human tragedies: at individuals and families whose lives are falling apart because they can’t find work, at savings consumed, homes lost and dreams destroyed. And the longer this goes on, the bigger the tragedy.

There are also huge dollars-and-cents costs to our unmet jobs crisis. When willing workers endure forced idleness society as a whole suffers from the waste of their efforts and talents. The Congressional Budget Office estimates that what we are actually producing falls short of what we could and should be producing by around 6 percent of G.D.P., or $900 billion a year.

We have the capacity to fix this. But so far the political elites have refused to take action.

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David Dayen

David Dayen