Long-Term Jobless Left Out of the Recovery; Despite Improving Economy, Prospects Are Bleak for Millions of Unemployed

September 2, 2013, 7:15 p.m. ET

Long-Term Jobless Left Out of the Recovery

Despite Improving Economy, Prospects Are Bleak for Millions of Unemployed

BEN CASSELMAN

For those left behind by the long, slow economic recovery, time is running out. More than four years after the recession officially ended, 11.5 million Americans are unemployed, many of them for years. Millions more have abandoned their job searches, hiding from the economic storm in school or turning to government programs for support. A growing body of economic research suggests that the longer they remain on the sidelines, the less likely they will be to work again; for many, it may already be too late.By most conventional measures, the U.S. economy is healing, albeit slowly. Gross domestic product grew at a 2.5% rate in the second quarter of the year, the government said last week, the best pace since last fall. Payroll figures, due Friday, will likely show that hiring held steady in August. The housing market is rebounding, corporate profits are strong, and households are repairing their balance sheets.

But the recovery isn’t reaching many of the most vulnerable. For those without a high-school diploma, the unemployment rate in July was 11%. For African-Americans, it was 12.6%. For teenagers, 23.7%. Even more worrisome to economists are signs of a bifurcation in the labor market: For those unemployed less than six months, the odds of finding a job have improved steadily over the past year; the long-term unemployed have made almost no progress at all.

The recession, for all its brutality, was comparatively egalitarian, said Gary Burtless, a Brookings Institution economist. It struck the young and old, educated and uneducated, white collar and blue collar. The recovery, by contrast, has been asymmetric: Those who held on to their jobs or quickly found new ones have made up much of the ground they lost, while the jobless continue to suffer.

“If you’ve made it through and you’re still employed, your stock portfolio has recovered, your house price is recovering, too,” Mr. Burtless said. “For the unemployed, this has been a miserable recovery compared to pretty much any of the postwar recoveries.”

Debbie Orr lost her job as director of a Dallas-area retirement community more than five years ago and has been mostly out of work ever since. She receives a $1,500 monthly disability payment, the result of a back injury, and lives with her 82-year-old mother, who receives Social Security benefits. But the payments aren’t enough to make ends meet without help from her brother, and even with help Ms. Orr and her mother keep the air conditioning off in the Texas heat.

“Every cent that comes out is earmarked for something,” Ms. Orr said. “I go to bed a lot at night trying to figure out what I’m going to do to pay my electric bill.”

Ms. Orr, 47 years old, says she hasn’t actively looked for work in the past year, in part because she has been caring for her mother. But she is now reactivating her professional network in the hopes of finding a job as the economy improves.

Economic research suggests Ms. Orr may struggle to find work. Recent studies in both the U.S. and overseas found employers often won’t even consider the long-term jobless for openings.

Many have given up applying. Nearly seven million people say they want a job but aren’t actively looking for work. The share of the population that is working or looking for work—a measure known as the participation rate—stands near a three-decade low. The rate was falling even before the recession, partly because of the aging of the baby-boom generation, but economists disagree about how much of the more recent decline is tied to the weak economy.

“People have found other things, maybe staying at home, taking care of family,” said Willem Van Zandweghe, an economist at the Federal Reserve Bank of Kansas City. “You need to see a much stronger economy before they consider coming back.”

For economists, the key question is how many of the labor-force dropouts will return when the economy eventually rebounds more strongly. If most of the dropouts are simply waiting for better times, then the labor market is significantly worse than the 7.4% unemployment rate would indicate. That, advocates of more government stimulus argue, means the Federal Reserve should keep trying to boost the economy to put the jobless back to work.

But if most of the dropouts are gone for good, then no amount of stimulus is likely to bring workers back. A permanently smaller workforce would mean it takes fewer jobs than in the past to bring down unemployment, but it also means the economy’s underlying growth rate has slowed.

At least some of those who have left the labor force are unlikely to return. More than 8.9 million Americans were receiving federal disability payments in August, 1.8 million more than when the recession began. Experts suspect many of the new recipients would have kept working in a healthier economy; research has found that once people begin receiving disability payments, relatively few return to work.

But other workers, especially those in their 20s and 30s, will almost certainly return.

When Sara Fitouri was nearing graduation from Ithaca College in New York state last year, she thought about heading to work. But with job prospects weak, and tens of thousands of dollars in student-debt payments waiting for her when she graduated, the 23-year-old decided to go to law school instead.

“I knew I wouldn’t be able to find a job, and continuing with school allows me to defer my loans,” Ms. Fitouri said. “I knew very, very few of my peers who had jobs coming out of school.”