Long-Term Unemployment Is Turning Jobless Into Pariahs

Long-Term Unemployment Is Turning Jobless Into Pariahs

Long-term unemployment is one of the most vexing problems the U.S. faces, and today’s jobs report shows all-too-meager progress in fixing it.

The U.S. created 165,000 new jobs in April, pushing down the unemployment rate to 7.5 percent from March’s 7.6 percent. But as of the end of April, 4.4 million Americans, or 37 percent of the unemployed, had been without a job for 27 weeks or longer, barely better than March’s 39 percent. The U.S. can’t afford to write off more than 4 million people who would like to work but haven’t for more than six months.

Long-term joblessness peaked in April 2010 at 6.7 million, so the picture might seem to be improving. Hidden within that number is this troubling fact: The average unemployed person has been out of work for 36.5 weeks. That’s not much better than the December 2011 duration of 40.7 weeks, which was the longest since World War II. Long-term unemployment at the start of the recession in December 2007 was 1.3 million people, and the average duration was 16.6 weeks.

Terrible things happen to people when they are out of work for long periods, numerous studies show. Beyond a sharp drop in income, long-term unemployment is associated with higher rates of suicide, cancer (especially among men) and divorce. The children of the long-term unemployed also show an increased probability of having to repeat a grade in school.Finding Causes

There is less agreement on why so many people have been out of work for so long. Democrats generally point to the anemic recovery, in which weak demand for goods and services results in less hiring. The cyclical nature of unemployment, they say, can be addressed with more government stimulus.

Republicans tend to focus more on structural problems, in which the education and experience levels of the unemployed don’t match what employers say they want in job candidates. More government spending, they say, would be a waste of money because it won’t close the skills gap. Some Republicans also think that extended unemployment benefits are a disincentive to job hunters.

Recently, though, economists in both camps have come to agree that something bigger — and more insidious — is at work: Unemployment causes social scarring. In other words, the stigma of long-term joblessness is, by itself, causing persistent joblessness. This is true whether you have a college degree or a high-school diploma, whether you are middle-aged or 20- something. It’s also true whether your collar is blue or white.

When researchers at the Federal Reserve Bank of Boston sent fake resumes to employers with job openings, the length of time candidates had been out of work mattered more than their job experience in determining who got called in for an interview. Applicants who had only recently lost a job but had no relevant experience were far more likely to be called than those with many years of experience who had been out of work a long time. So much for the skills gap.

One way to thwart such bias is to make sure the unemployed understand that their chances of getting work improve if they are in a job-training program or working at least part-time. Not sitting idle is paramount. This is where government can help.

Unfortunately, the U.S.’s job training effort is a mishmash of 47 programs spread across nine agencies. At $18 billion a year, it’s also costly. The effectiveness of those programs is hard to quantify because of poor data collection and management oversight, the Government Accountability Office concluded in 2011.

Only five of the 47 programs could demonstrate whether a positive outcome — meaning a trainee got a job, for example, or obtained a new credential — could be attributed to the program. About half the programs hadn’t had a performance review since 2004.

Finding Solutions

Finding out what works is crucial. Other solutions should be tried, including giving preference to the long-term unemployed when filling federal government jobs. In addition, President Barack Obama should ask Congress to approve tax breaks for companies that hire the long-term unemployed.

Work-share programs, in which employees accept reduced hours when demand is slack in exchange for unemployment insurance to compensate for lost wages, has worked in other countries. The U.S. should also experiment with state-based clearinghouses that connect employers with job-seekers in other states and subsidize the moving expenses.

The U.S. is in dire danger of having a permanent class of long-term unemployed. It has to do better.

To contact the Bloomberg View editorial board: view@bloomberg.net.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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