Adjective Quibble: The Long-Term Unemployment Rate is NOT “Sticky” or “Stubborn”
A Wall Street Journal blog post this morning describes an Obama administration initiative to combat long-term unemployment. In the opening sentence, the author follows a too-common convention in describing the long-term unemployment rate as “sticky.” Sometimes the adjective is “stubborn.”
I know that this will sound like quibbling, but in this case adjectives really matter for understanding the problem. As a paper I co-wrote shows pretty clearly, the long-term unemployment rate (LTUR) has not been sticky or stubborn for years. In fact, the LTUR has fallen faster than one would expect given the overall pace of labor market improvement. It is true that the LTUR remains too high, but that is because it skyrocketed during the Great Recession and in the six months after its official end. But the LTUR has since then not become resistant to wider labor market improvement.
The concrete policy implication of recognizing this is that by far the most important thing that can be done to lower the still too-high LTUR is to maintain support for economic recovery more broadly. In today’s far too narrow macroeconomic policy debate, this simply means the Fed should not boost short-term interest rates until the labor market is much, much healthier (including a much lower LTUR).
In regards to the Obama administration effort as described in the WSJ, it seems to mostly consist of jawboning corporations to discard human resources strategies that might disadvantage the long-term unemployed for no reason other than their long duration of joblessness. This is a good idea. There seems to be some real evidence that employers have begun using automatic filters based on the duration of joblessness to screen potential hires—and this can disadvantage the long-term unemployed even though there is no evidence that the productivity or employability of long-term unemployed workers has been damaged by the Great Recession and long recovery.
Basically, because there have been so many potential hires for each vacancy in the economy for so long, employers figured they had to sort these potential hires somehow. Many seem to have chosen a pretty dysfunctional strategy of simply sorting based on unemployment duration. The Obama administration initiative is in a sense an effort to save employers from their own bad decisions.
However, we should be clear that even this employer discrimination has not kept the LTUR from falling faster than overall labor market improvement would predict. And, we should also be clear what would be the most powerful tool to rob employers of the ability to sort potential hires in the queue for vacancies like this: a return to genuine full employment.