NEW YORK (CNNMoney.com) -- A
government report on January
jobs showing that employers
trimmed payrolls for the
first time in four years set
off alarm bells.
But the report, which was
released Friday, tells only
part of the story about the
underlying weakness in the
labor market.
The number of Americans out
of work for at least six
months is rising - reaching
levels more typically seen
deep into a recession or
period of job contraction,
not at the beginning.
And while some economists
believe that the drop in
jobs reported in January
might later be revised away
to show a narrow gain, it's
clear that the rise in
long-term unemployment is a
far more established trend
and one economists say isn't
going away anytime soon.
Harder to find a new job.
The number of long-term
unemployed stood at a
seasonally-adjusted 1.4
million in January, up about
21% from year-earlier levels
and up 3% from the previous
month. The full-year average
for 2007 was 1.2 million
long-term unemployed, nearly
double the reading for 2000
- just before the last
recession.
For all of 2007, about 17.6%
of those who were unemployed
had been out of work six
months or more. That
compares to only 11.4% who
were long-term unemployed in
2000.
And while the unemployment
rate dropped to 4.9% in
January from 5% in December,
the latest reading showed
18.3% of the unemployed have
now been out of work for at
least six months.
"You have to understand that
5% unemployment today is
worse than 5% unemployment
10-15 years ago," said Jason
Furman, senior fellow,
Brookings Institution.
Furman and others say
long-term unemployment is
not just a problem for those
struggling to find jobs. It
poses a risk for the economy
as a whole and cuts into
household earnings and
economic output.
If 5% of the labor force is
unemployed for a short time
as they switch jobs, they
could keep spending, drawing
on a combination of
government assistance and
personal savings.
But those who are unemployed
more than six months lose
unemployment insurance
benefits and are more likely
to deplete savings to the
point where they are forced
to cut back on spending.
They also will be far more
likely to accept jobs at
lower pay than their
previous positions, which
puts downward pressure on
wages.
"We are looking at a labor
market already that is weak
and set to get a lot
weaker," said Dean Baker,
co-director of the Center
for Economic and Policy
Research.
Job seeker surprised by
difficulty. Les Tarlton had
worked in the telecom
industry for eight years
when the company he was
working for shut its
operations near his suburban
Dallas home in January 2003.
"I thought surely I can go
out and get a job," he said.
"I had a good reputation in
the company. I had survived
a lot of earlier layoffs. It
wasn't like I lost my job
because of anything I did."
But five years later he has
yet to find a permanent job
to replace the one he had
doing business performance
analysis. He's had a variety
of short-term contract
positions, but nothing
long-term.
"Part of it is my age," said
Tarlton, 54. "They can hire
a person straight out of
college for a lot less
money. And while I have
skills in business and
finance, my college degrees
in are in Christianity and
psychology, my master's is
in theology. That doesn't
help."
Tarlton is now home
schooling his six-year old
and taking care of his other
four children while his wife
works. But the total
household income is a
fraction of what it used to
be. While he still sends out
about five resumes a week,
he said he essentially gave
up hopes of a new job about
two years ago.
"We've burned through all of
our retirement trying to
survive," he said.
Problem could get worse As
the stimulus package makes
its way through the Senate,
there have been pushes to
extend unemployment benefits
beyond six months.
Even if it's not included in
this bill, House Speaker
Nancy Pelosi said she would
support separate legislation
to address the growing
problem.
"While it might have been
premature to extend benefits
in the past at this level of
unemployment, today it could
be overdue," said Furman.
If the economy does enter a
recession, the problem of
long-term unemployment could
reach levels not seen since
the early 1980's, according
to Baker.
A report from the
Congressional Budget Office
last October confirmed that
the long-term unemployment
problem is a growing one,
suggesting there could be a
fundamental shift in the
labor markets.
"People are less likely to
become unemployed than in
the past, but those who do
become unemployed are more
likely to remain unemployed
for more than half a year,"
said the October 2007
report.
Older work force playing a
role The CBO report didn't
have any easy answers for
this trend. But it suggested
that the aging of the work
force might be a major
contributing factor.
Baker agrees that the
demographic shift is
probably part of the
problem.
"Someone well into their
forties who loses their job
at their peak earning
potential, they might be
expecting a higher pay than
someone in their twenties,"
Baker said. "Even if they're
willing to take a lower
paying job, the employer
might decide not to offer it
to them because they'll fear
the older worker won't be
loyal."
The CBO report added that
some firms are using
temporary layoffs less
frequently than in the past.
When someone loses a job
today, it's likely a
permanent separation.
Employers and workers
getting more picky Officials
in job outplacement firms,
hired by firms to work with
employees who have lost
their jobs, say they're
seeing some increase in the
time it takes to find new
positions even for those
generally better educated
workers with whom they work.
Cory Holbrough, senior vice
president of Lee Hecht
Harrison, said that
employers for skilled
positions are becoming more
selective about new hires
than they used to be.
"In the past they might have
hired the best person who
had eight or nine of the ten
skill sets they were looking
for," he said. "Now they are
saying, 'We want all ten
skill sets.'"
John Challenger, CEO of
Challenger, Gray &
Christmas, said the
much-publicized downturn in
the housing market is also
playing a role, as some job
seekers are less willing to
relocate to take a new job
if it's going to mean taking
a large loss on their
current home.
Along those lines, he noted
that 11% of job seekers
relocated in the fourth
quarter of 2007, down from
15.6% in the fourth quarter
of 2006.
