Think Unemployment Claims Show a Glimmer of Hope? Think Again.

by Pavlina R. Tcherneva

Last week 565,000 people filed first time jobless claims. Although this is the smallest number since January 2009, it is hardly cause for celebration. The unemployment claims data is highly volatile, and numbers reported during holiday weeks are especially poor indicators of employment trends. More telling is the number of continuing unemployment claims, which hit yet another record high of 6,883,000.

While many economists think that the economy is experiencing a labor market shock which will correct sooner or later, data on the duration of unemployment paints a different picture. Problems with the labor market have been brewing for decades.

Figure 1 shows the number of people who have been unemployed for 15 weeks or longer as a percentage of total unemployment, as well as those who have been without a job for 27 weeks or more (a subset of the first group).

Figure 1. Duration of Unemployment: Unemployed individuals for 15 weeks or more and 27 weeks or more as a percentage of total unemployment

While the series are highly cyclical, their trends have been decidedly up for the last four decades. By contrast, the share of the unemployed without a job for 14 weeks or less has been trending down during the entire postwar period (Figure 2).

Figure 2. Duration of Unemployment: Individuals unemployed for 14 weeks or less as a percentage of total unemployment

The data shows that an increasing percentage of those without jobs stay unemployed for longer periods of time, while a falling share experience relatively shorter spells of unemployment.

Is this an agile American economy with dynamic labor markets for the world to envy?

Why are 50% of the unemployed remaining jobless for 15 weeks or more, and more than half of them remaining unemployed for over 27 weeks? Some would argue that unemployment insurance (UI) induces individuals to stay unemployed for the duration of the benefits, but UI alone cannot explain the data. In most states, individuals collect unemployment insurance for 26 weeks or less (although in some cases it can be extended) and the benefits are meager. In New York state, for example, benefits (as of December 2008) ranged from $40 to $405, while in Arizona, the maximum UI was $240/week–hardly a strong incentive for someone to stay unemployed.

While unemployment insurance is an important safety net, long term unemployment is becoming an increasing problem for many. (There is the additional problem of the discouraged individuals who have left the labor force, believing that there are no job prospects after unsuccessfully looking for employment opportunities).

A more fundamental question is this: Why is it that the main safety net we offer those who have been laid off is a program that pays them NOT to work for long periods of time?

How about supplementing unemployment insurance with a public service employment program that offers an above-poverty wage/benefit package to all of the unemployed and marginalized individuals who want to work in the public service sector? In addition to the work component, the program can offer training and education to help participants transition to better paid private sector jobs. Wouldn’t that be a more meaningful safety net? The unemployed need not have gaps in their resumes but could instead participate in public service, get training and education, maintain and upgrade their skills, and have useful work experience to bring to their future employers.

4 responses to “Think Unemployment Claims Show a Glimmer of Hope? Think Again.

  1. Here's what's needed:Instead of being the "financier of last resort" to zombie banks and Dinosaur Motors, the Federal government should become the "employer of last resort".Just as FDR had a Public Works Administration to craft the "infrastructure" projects of his day, there was also a Works Progress Administration to hire the unemployed and put them to work doing the necessary labor of the Nation.And they didn't just hire guys with shovels – they hired teachers, writers, scientists, and yes, economists – and at what were then considered living wages as well.Had the stimulus been spent on direct federal employment of the unemployed instead of being wasted on tax cuts for the wealthy and bailouts of mendicant states, we might now be seeing some of the "green shoots" BHO is talking about.We'll have to do that anyway … or there will be riots in the streets as unemployment crosses the 20% mark … which it may well do in about 6-9 months time…

  2. Would it be possible to adjust these graphs for the unemployment rate at the time, or GDP growth or some other proxy, so we can get a better sense of how long it takes to find work relative to the difficulty of the employment situations (thereby negating the cyclical-ness of these graphs, and isolating the trend we're interested in)? That could be an interesting statistic.

  3. Every one will have a dream a getting a good job that they love,but not every one will get right place to work.There are many ways to find job openings get into good a job, some try those things and some won't.This is because they are not aware of it.

  4. Great post and good job,thanks!