Feds should monitor ranks of short-term unemployed
WASHINGTON (Reuters) — The millions of Americans suffering through long stretches of unemployment could be left behind as the economy strengthens, a study by an influential former White House economist found.
Alan Krueger, a respected laboir market economist who led President Barack Obama's Council of Economic Advisers, said those unemployed long term tended to put less effort into their job hunts than others and were often viewed by employers as undesirable.
The sobering analysis published on Thursday by the Brookings Institution, a think tank in Washington, projected that people out of work for more than six months will increasingly give up their job search in the coming years.
Their plight could be one of the deepest scars left by the 2007-09 U.S. recession.
While the unemployment rate has fallen quickly over the past year, most of the workers getting jobs have experienced only brief stretches of unemployment.
It has yet to be seen whether the long-term unemployed will eventually get jobs as the economy strengthens or drop out of the labour force altogether. Krueger's analysis suggests America is headed towards the latter of those two paths.
"A concerted effort will be needed to raise the employment prospects of the long-term unemployed, especially as they are likely to withdraw from the job market at an increasing rate," Krueger wrote in the paper, which was co-authored by his Princeton University colleagues Judd Cramer and David Cho.
In February, there were 3.8-million people without jobs who had been actively looking for work for at least 27 weeks, nearly three times more than on the eve of the recession.
Krueger and his co-authors found the long-term unemployed were especially prone to dropping out of the workforce. While that pattern is suppressed in the aftermath of recession, the researchers concluded it would reassert itself in coming years.
It also appears unlikely a strengthening economy will benefit the long-term unemployed much. The researchers found that even in states with low jobless rates such as North Dakota, where the economy is booming thanks to surging oil output, the long-term unemployed don't seem to be doing any better.
The paper also suggested the U.S. Federal Reserve would do better to monitor the dwindling ranks of short-term unemployed than the overall jobless rate when trying to gauge when a tightening labour market might fuel inflationary wage pressures.
The research supported the growing view among economists that those out of work for an extended period don't suppress wage growth much, perhaps because they aren't trying very hard to get jobs or aren't seriously considered when they apply.
That means there could be less slack in the job market than would be suggested by the current unemployment rate of 6.7 per cent. The number of short-term unemployed workers has fallen quickly in recent years and is now at roughly the same level as it was in 2004.
"Further declines in short-term unemployment would be expected to be associated with rising inflation and stronger real wage growth," the economists wrote.
While this view has gained currency among academic economists, Fed chair Janet Yellen on Wednesday said recent evidence supporting this conclusion was far from conclusive. She said she remained concerned about people who gone for long stretches without work.
