The urgency of bringing down unemployment

December 3, 2010

The unemployment rate has long been called Obama’s Katrina, but at this point it’s clear that it’s much worse than that: its political toll is surely worse for the president than a bungled hurricane response could ever be. Its human toll too, probably. And while it’s never a good idea to read too much into a single datapoint, the fact that it rose, unexpectedly, to 9.8% in November is undeniably bad news.

Catherine Rampell has a great piece in today’s NYT about the long-term unemployed, complete with a new parsing of data from the Labor Department:

People out of work fewer than five weeks are more than three times as likely to find a job in the coming month than people who have been out of work for over a year, with a re-employment rate of 30.7 percent versus 8.7 percent, respectively.

She also reprints a familiar and damning chart: the average duration of unemployment is now significantly longer than the 26-week maximum duration of unemployment benefits.


Rampell does a good job of explaining what the sensible policy responses might be for a government looking to bring these numbers down. The list of possibilities includes tax breaks for hiring the unemployed; direct employment of the unemployed, as in the New Deal; and programs devoted to retraining and apprenticeship. Notably absent from the list is the idea of getting the Federal Reserve to buy long-dated Treasury bonds, which seems to be the only thing the government is actually doing.

Indeed, the elected branches of government are making things worse rather than better: 2 million of the long-term unemployed lost their federal emergency unemployment aid on Tuesday, and Republicans in Congress are much more interested in a $700 billion scheme to extend tax cuts for people earning more than $250,000 a year than they are in providing some kind of social safety net for people who have been out of work for more than six months.

Rampell ends her piece with a resonant point:

“After a while, a lot of European countries just got used to having 8 or 9 percent unemployment, where they just said, ‘Hey, that’s about good enough,’ ” said Gary Burtless, a senior fellow at the Brookings Institution. “If the unemployment rates here stay high but remain relatively stable, people may not worry so much that that’ll be their fate this month or next year. And all these unemployed people will fall from the front of their mind, and that’s it for them.”

European countries, of course, don’t cut off benefits after six months, just when the unemployed need them most. But Burtless’s point is well taken. Right now, the unemployment rate is rising and therefore news, which means that people are at least paying attention to it. If it just bogs down, over the long term, somewhere north of 8%, then at that point the policy debate loses all urgency, and unemployment gets added to the long-term fiscal outlook as something which really ought to be addressed but never is.


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