The urgency of bringing down unemployment

By Felix Salmon
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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“and that’s it for them.”

Chills ran down my spine when I read that.

Shifting millions of Americans into the column of afterthought.

Posted by LadyGodiva | Report as abusive

For starters, at least some European governments DO cut off unemployment benefits after 6 months (to be replaced in extreme cases by emergency funds, which can be significantly lower than unemployment benefits). Hiring should mostly occur through the private sector, and the private sector is not hiring because of taxation uncertainty and the lack of clarity about the stability of the financial system. As long as those are not addressed, the situation for the long-term unemployed will remain what it is. “Make-work” schemes of the government, including retraining and apprenticeships, are on average highly ineffective, a waste of taxpayer resources and highly bureaucratic. I speak from personal experience.

Posted by Abulili | Report as abusive

“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.”

hehehe – well done, Felix. Make sure you read Bill Gross’s monthly piece – relevant to the jobs situation. mber2010.aspx

Posted by KidDynamite | Report as abusive

Eventually the media – and pundits like Mr. Salmon – will realize the enormous blunder made by President Obama when he took the advice of Rahm Emanuel and let the whole financial crisis simmer unnecessarily for several months early on in his presidency. ‘Never let a good crisis go to waste’ was, I believe, the advice to Mr. Obama. So the Democrats ignored the whole stumbling economy to focus on medicare reform, despite clear evidence that it wasn’t what the voters wanted. The ideologues held sway!

As a result, the uncertainty generated by Mr. Obama’s erratic policy shifts and political demogoguery and ‘reform’ attempts on too many fronts led to paralysis in corporate America and confusion amongst the voters, with the net result that the economy has had terrible difficulty recovering. It’s trying, despite Mr. Obama and the incredible negativity of the media, to get going again but, really, until Mr. Obama and the Democrats are gone, it’s hard to be optimistic. These guys really bungled it.

Posted by Gotthardbahn | Report as abusive

What do Republicans care, now that the election is over. They won’t have to worry about all those unemployed people voting for another 2 years, and they will continue to blame it on the deficit boogeyman and “runaway government spending.” If most of those unemployed also become homeless, they don’t have to worry about them voting at all.

Posted by Fishrl | Report as abusive

Gotthardbahn is right. Too much dithering, too little leadership. On the bright side, Rahm’s advice was taken by his own tenant, who is running for mayor because, well, he IS a Chicago resident, and Rahm’s coronation is now so late that it might never happen. Now THAT is taking full advantage of a crisis!

Posted by LadyGodiva | Report as abusive

@Abulili, you said “Hiring should mostly occur through the private sector, and the private sector is not hiring because of taxation uncertainty and the lack of clarity about the stability of the financial system.”

I’ll agree with the first part of that statement, but the rest is pure fiction. I’m not saying you made it up, but that any business executive who says that their company won’t hire because of the tax uncertainty is lying. Businesses aren’t hiring because they don’t believe the economy will grow. They have record levels of cash which earn far less than any after-tax profits they would earn if they chose to invest it, so the tax rate is irrelevant. They are not investing because they don’t believe the business is there.

All this talk about tax rates preventing investment is nonsense. I’m one of those over $250K individuals who can say without question that how much I spend or invest will have absolutely nothing to do with whether or not the government restores the Bush tax credit. And I don’t know another single person in my income bracket who could say otherwise.

There is little Obama can do on his own to revive the economy, as it will also take a Congress that places a higher priority on solving economic problems than on solving political problems. The Republican leaders in the house and Senate have already said that their top priority is not to reduce unemployment, but to knock Obama out of office in 2012. They are already holding every bill hostage to restoring the Bush $250K+ tax break, which should tell you where their priorities lie.

Posted by OnTheTimes | Report as abusive

There ain’t no such thing as a free lunch. The government can solve unemployment, but only by creating larger and more serious problems elsewhere. (As happened when Bush “solved” the 2001-2002 recession through massive fiscal intervention.)

It really doesn’t matter whether unemployment is urgent or not. At this point there isn’t anything that can be done but to embrace the pain and hope that something healthier emerges from the other side.

Posted by TFF | Report as abusive

I’d say taking a 500 million dollar surplus and turning it into an 11 billion dollar deficet is what you would call bungling it!!!!!! Futhermore the tax cuts have been in place for six years and we all know how many jobs were created through the Bush years, 323,000 Keep up the good work republicans!!!!

Posted by ecyob | Report as abusive

Deficit spending can create a short-term stimulus, “priming the pump” so to speak, but long-term deficit spending creates uncertainty and depresses growth. President Bush engaged in a systematic campaign to create a monstrous perpetual deficit, beginning with a very expensive foreign war, then adding two rounds of tax cuts, then passing an expensive increase to Medicare.

What is the national debt now? Something like $50,000 per man, woman, and child in the country? It doesn’t really matter whether it is “national debt” or “personal debt”. The crumpling sound you hear is America collapsing under the dead-weight of what it owes.

There is still time to repair the damage, to embrace the necessary pain of fiscal sanity. Vote for tax increases, spending cuts, and reduced entitlement programs. There is time — but there is simply ZERO political will to do so. The Republicans hate the idea. The Democrats hate the idea. The only thing they can agree on is that a dead economy is preferable to a balanced budget.

Posted by TFF | Report as abusive

Reuters could do their bit. See my comment on Google NYC Building story. 596120101203

Posted by polit2k | Report as abusive

While there is much reason to cry in your soup, tomorrow is another day. Your 2 party system stinks to high heaven and when the economy is in gridlock, the last thing you need is a Government in gridlock.

Constituents have to get the fire going under the people they voted for. I would say sitting back and hoping for the best hasn’t been working too well and if you voted for Republicans, you surely got what you asked for… deadbeats looking out for the rich and to the detriment of those who aren’t.

LadyGodiva said: “until Mr. Obama and the Democrats are gone, it’s hard to be optimistic.”

Republicans filibustered on any issue they could before they had any power… what will be different Lady Godiva? They already held the record for fillibusters in August… They are holding congress hostage until the next election and won’t pass the ball. And they are willing to do it blatantly. And meanwhilethe American people are watching and waiting?

The only thing GOPS care about is getting Obama out and meanwhile they will ensure he is ineffectual! Republicans are admitting that is their agenda… and that’s about it… and are crying it from the rooftops. Yet you think they will be more effectual if they do, when they don’t care RIGHT NOW what is going on with the American people and the economy? Partisan tripe.

Sure you can all just wait and see… *yawn* but meanwhile your economy and country is stagnant. Where are the innovators and the voices of reason that you need to get out from under this mess?

“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.”

Felix is right. And they will throw more money to the wind because the banks are still not as solvent as Basel makes them look and the Feds will prop them again under the guise of a ‘job stimulous.’ It’s high time that the Government be for the people, because from here it looks like a damn site more like a Plutocracy.

Posted by hsvkitty | Report as abusive

Nice to see all the Republicans on this thread working the “uncertainty” talking points. Um, I thought Republican heroes earned their $150M annual compensation by, um “taking risks?”

Such bullshit. To name names, Abulli and Gotthard.

It’s pretty simple. Tax cuts expire. Out of Iraq and Afghanistan. For now, plough most of the $800B per year that would save into infrastructure, education and manufacturing subsidies.

Get people working again. Obama’s failure to prioritize the American people is shameful.

Posted by Dollared | Report as abusive

Dollared, the most aggressive “costs” for the Bush tax cuts 2001-2010 was 2.5 trillion dollars. Lets assume that is right and that the tax “lost” in a depressed economy is the same as that in a bubble so that is 277bn. Afghanistan is less than 7bn a month thats 84. Iraq is much less but lets assume the same, grand total of around 450billion or roughly half what you claim. Maybe Obama should spend a couple of hundred dollars teaching you to count?

Posted by Danny_Black | Report as abusive

Dollared, the most aggressive “costs” for the Bush tax cuts 2001-2010 was 2.5 trillion dollars. Lets assume that is right and that the tax “lost” in a depressed economy is the same as that in a bubble so that is 277bn. Afghanistan is less than 7bn a month thats 84. Iraq is much less but lets assume the same, grand total of around 450billion or roughly half what you claim. Maybe Obama should spend a couple of hundred dollars teaching you to count?

Posted by Danny_Black | Report as abusive

hsvkitty, forget goverment spending I will personally give you a fiver to go out and buy a clue…..

Posted by Danny_Black | Report as abusive

Thanks Danny Black. I’m glad you have the budget numbers in front of you. Here’s a link: tml. Direct cost of wars, $140B/year. Increased non-direct-to-wars defense budget since 2001 (not Homeland Security, yet another endless bucket of useless political patronage): $350B/year. Add in the $277B/year you concede as the cost of the Bush Tax Cuts, and you get to $767B/year.

That’s where my $800B comes from. And if it were half that number, so what? What is your policy prescription? Continued tax cuts, deficits and 10% unemployment? Maybe just direct $1M annual payments from the Social Security Trust Fund for each Taxpayer reporting more than $1M/year in capital gains?

Posted by Dollared | Report as abusive

Dollared, I don’t have “budget figures in front of me”. What I have is a quick google for the worst case figures for the three items you claimed cost 800bn a year and add them and came to around half that. The actual costs are probably much lower, due to a lower presence in Iraq and tax cuts for people earning more than 1m costing less in a depressed economy than in the middle of a raging bubble.

As for getting out of Iraq, your link claims less than I than I gave as an upper bound, hence we’d arrive at a lower not higher figure, requiring you to pick up another magical random figure to get to your original, made-up total. Apparently innumeracy is a requirement for lefties.

If you are talking about making significant cuts to federal spending then the big boys are medicare, social security and they are structural, ongoing costs.

Posted by Danny_Black | Report as abusive

Clues haven’t been a fiver since the forties. That means you owe me $75.66.

I hope you won’t be offended if I don’t get the clue from you though. I prefer someone who isn’t a biased wall streeter.

I appreciate the offer to give it to me personally. Didn’t you say you lived in the UK? Christmas is coming, so if you would like to buy me more clues, by all means, as that would make your trip to meet with me all the more worthwhile.

As you might have a limited sense of humour, let me add that this was a little tongue in cheek. That part where I said I would personally meet you.

Posted by hsvkitty | Report as abusive

@ dollard

I think doubling the cost DOD might be releasing to the public is getting a little closer to the actual costs.

Your ideas for reducing the defecit and getting people back to work for a robust USA was an excellent idea. It really is that simple and will jumpstart the economy,but partisan politics hate simplicity.

“It’s pretty simple. Tax cuts expire. Out of Iraq and Afghanistan. For now, plough most of the $800B per year that would save into infrastructure, education and manufacturing subsidies. “

Posted by hsvkitty | Report as abusive

Of course, you like the idea. It is straight out of the hsvkitty school of economics – factually incorrect and when asked to back it up he/she posts links that show he/she is wrong, just like you, thus requiring him/her to simply make up some random figure, just like you would.

It is simple… If only Obama had thought of taking say 787bn and using it to stimulate the economy… oh wait a minute:

Guess that 13bn was more important than we thought.

You are of course aware that even if it was 800bn that the deficit is much larger than that? No? I am shocked.

Posted by Danny_Black | Report as abusive

ecyob, ah yes. For one minute lets look at a hypothetical: bubble bursts in 1999 not 2000. Bin Ladin moves up his date for his big attack to September 2000 and BSC runs into financial difficulty in March 2009.

Would you be claiming that GWB was a brilliant president, fixing the Clinton legacy and having his own shining one destroyed by Obama?

Posted by Danny_Black | Report as abusive

Danny_Black, You are simply wrong. The facts do not support you. Period. If you actually understand how the budget works, the big boys are, in order 1)military and HD spending ($782B), up more than 100% since 2001, 2) Medicare/Medicaid (~$670B but it’s unclear from Wikipedia how much that is offset by the dedicated Medicare tax), and 3)temporary tax cuts (taking your numbers, $277B).

Social Security costs ~$600B per year, but it is fully funded by a dedicated fund that is not part of the federal budget. That is simple accounting. (amazing how many people, MBAs in particular, that could not hold their jobs if they did not understand accounting identities, who at the same time cannot seem to understand that we have a dedicated Social Security tax, a Social Security Trust Fund, and detailed information on at least the next 75 years of projected income and spending for that separate program).

So allowing tax cuts to expire that 1) by law are temporary, 2) were sold to us as provisional as a way to dispose of a surplus and could always be rescinded if that surplus disappeared, 3) and were never funded under paygo rules and therefore cannot be justified now, is the quickest, most rational way to cut our deficit and make funds available to fund investment in our nation’s future. To argue otherwise is to raise personal interest above national interest. ited_States_federal_budget#Major_expendi ture_categories

Next is to cut defense and homeland security back at least 30% and preferably 50%. Ending wars would be the quickest way to do this, but I’m certainly open to cutting pay to military and intelligence contractors by 50%.

Third is to tighten the reins on medical spending, particularly by eliminating the overhead of private insurance, aggressively negotiating drug costs to the world average, and cutting compensation to providers.

This is not rocket science. Speaking of which, did you see the announcement that China is spending $1.5 Trillion to target funding of new developing 21st century industries?  /china-has-1-5-trillion-spending-plan-r euters-says-update1-.html

What’s your plan for the future, Danny? What do you think should be done for the 18% of Americans who are not fully employed?

I keep asking…but you appear to be more interested in arguing that George Bush was – what was that word – “brilliant.”

Good luck with that one.

Posted by Dollared | Report as abusive

Factually incorrect? So 450bn = 800bn?

Social security fund is fully funded?

“The Disability Insurance (DI) Trust Fund, however, is now projected to become **exhausted** in 2018″
“Social Security expenditures are expected to **exceed** tax receipts this year for the first time since 1983″
“After 2014 deficits are expected to **grow rapidly** as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are **exhausted*** in 2037″

Note that there is quite a far bit of volatility in those assumptions – for instance:

“the Hospital Insurance (HI) Trust Fund is now expected to remain solvent until 2029, 12 years longer than was projected last year” – ie it doubled in less than year.

“China ***may*** spend ***as much as*** $1.5 trillion on seven strategic industries over the next five years, Reuters reported, citing an unidentified source with direct knowledge of the matter. “. Wouldn’t rush out and spend that money just yet…..

Of course could use the Chinese solution to unemployment, I am sure as an american you don’t like all those pesky freedoms anyway.

Posted by Danny_Black | Report as abusive

@Danny Black:

HSV kitty is a female. To discuss some of your ‘points’.

The costs of the war in Afghanistan are much Higher being the fuel costs (having to ship in and helicopter fuel to remote areas) and the cost per individual deployment is astronomical compared to other wars and even Iraq. DoD numbers are far below actual costs incurred.

Michael O’Hanlon, a defense analyst at the Brookings Institution, says one useful way to break down these huge numbers is to look at how much it costs to send just one soldier to war.

“We are at a point where it’s unbelievably costing us close to a million dollars, in additional costs — above and beyond salaries and the equipment that’s already in the inventory — per soldier or Marine per year,” he says.

Although you keep quoting DOD figures Danny, it does not include actual costs, as it is borrowed money and what was BUDGETED for expenditure is far less then what the pentagon actually spends in total.

The pentagon refuses to use actual cost figures to release as boots on the ground figures are what they feel is adequate for release, even though obvious costs such as returning equipment to USA to be repaired are not included. Future medical costs are certainly never included.

Regardless, bailing out a perverse and bloated financial system and continuing 2 fake ‘wars’ that create huge deficits (and needless deaths) were mistakes, but continuing to do so under the guise of protecting the USA’s economy and its people is dubious and borders on evil. Al Queda and the Taliban are still as able to flourish and function (as proven by the communiques released) and will regardless of how much more money is burned.

The US economy is still faltering, the unemployment rate is high ( only the lush who wall-streeters like yourself believe the recession is over as they are back to business as usual) and the deficit is staggering and you are suggesting that the stimulus package was already tried and was unsuccessful so why bother trying other tactics? (Actually after rereading your convoluted paragraph, what were you trying to say?) Look at how much of that was for infrastructure and jobs. It was mostly earmarked prior and the bulk of jobs were census employees.

Posted by hsvkitty | Report as abusive

The question comes down to – Is the goverment responseable to feed your family – or are you. I wonder how many people actually get jobs right before their benifits run out…

Posted by DeerHunter | Report as abusive

Once again, the only reason businesses hire in America, or anywhere else, is because of increased demand. The Republicans make it sound like they are wringing their hands, saying ‘I wish I could hire right now, but I’m so worried about my taxes.’ Right now, they are able to get more work out of current employees who are scared ****less they are going to lose their jobs and be added to the millions of unemployed. The goal of all established businesses is to do more with less.

Just think about this. If the internet had not been invented and we did not have online banking, the lines of unemployed would be far worse than anything seen during the Great Depression.

Government can, and has, and should create private sector economic growth by encouraging NEW business, not MORE business for already established companies. NEW business has no choice but to hire workers. Established business only wants to cut wherever possible.

However, Republicans are fighting to the death to keep the current economic stranglehold in place. They don’t want the world to change

Posted by lhathaway | Report as abusive

OT, but not: The Greatest Printing Disaster In The History Of The World: or_ages

And T: The policy solution for both DISemployment and aggregate demand is not difficult, though getting it “on the table” is. We need a Jobs Guarantee:

http://neweconomicperspectives.blogspot. com/2009/08/job-guarantee.html

Posted by lambertstrether | Report as abusive 1/01/17/why-jobs-havent-come-back/some-j obs-arent-needed

Felix, there are some interesting contributions here, but this one rather struck me as odd. This economics professor has no answers, seems to gloat that businesses are doing well yet not hiring because they have an upper hand to ensure a tight ship with less pay, but seems to be saying if you take the janitor jobs, you will be promoted as the company grows and the economy flourishes.

And to top it off, ends it with this remark which uses the royal “we” … “but we do need to learn to live with the growing pains.” Ouch, yes you do professor…
At least the comments make a good read on this one.

@lhathaway, the remark you made… The Republicans make it sound like they are wringing their hands, saying ‘I wish I could hire right now, but I’m so worried about my taxes.’ was so true. And people are waiting with baited breath to see the tax cuts for the rich put to work for the economy and hiring people…

Posted by hsvkitty | Report as abusive