This long-term unemployment chart of our economy scares me to death

The American economy is in better shape today than it was a year ago, and much better shape than it was five years ago. But if you want to alarm yourself, you can’t do much better than to look at this chart from the Economic Report of the President, hot off the presses this morning:

The unemployment rate has come down a lot, but the share of unemployed workers who’ve been unemployed a long time is still at historic levels. Let me count the ways in which this makes the economic situation look worse than the past year’s worth of job creation or the unemployment rate would make you think.

  1. Long-term unemployment is much more psychologically and financially devastating than the short-term kind.
  2. Long-term unemployed workers face discrimination in the hiring market.
  3. The long-term unemployed are very likely to become non-unemployed by leaving the workforce rather than finding a job.
  4. The long-term unemployed see their skills erode and wither over time.
  5. The most recent recession was clearly exceptionally bad, but there’s also a long-term trend toward long-term unemployment being a bigger and bigger problem.

What’s the solution? Well the best idea would probably be to dedicate more funding to what are called Active Labor Market Policies (ALMPs) which try to take specific actions to connect unemployed people with jobs, rather than simply cut checks to kinda sorta support them financially. ALMPs are almost by definition more expensive than passive income supports, but if they work they can have substantial benefits for both the re-employed workers and the overall economy.

David Card has a good overview of research on ALMPs and it basically says there are a lot of different programs out there (mostly in Europe) and some of them work well and others don’t and also the objective economic situation matters. That’s not an ideal conclusion from the standpoint of the content game since I can’t just dispense The Solution To The Problem. But in some hypothetical universe in which Congress was interested in working constructively on real problems, this is what they would be thinking about.

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