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The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options
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The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options

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Presentation by William J. Carrington, CBO Analyst, to the Winter Policy Forum of the National Association of State Workforce Agencies

Presentation by William J. Carrington, CBO Analyst, to the Winter Policy Forum of the National Association of State Workforce Agencies

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  • 1. Congressional Budget Office The Rise in Long-Term Unemployment: Causes, Effects, and Policy Options February 20, 2014 Presentation to the Winter Policy Forum of the National Association of State Workforce Agencies William J. Carrington Microeconomic Studies Division Full reports: Understanding and Responding to Persistently High Unemployment, www.cbo.gov/publication/42989; Unemployment Insurance in the Wake of the Recent Recession, www.cbo.gov/publication/43734
  • 2. C O N G R E S S I O N A L B U D G E T O F F I C E Unemployment and Long-Term Unemployment Were Very High During and After the Recession ■ The unemployment rate rose from less than 5 percent in most of 2007 to 9.6 percent in 2010, and it has now fallen to 6.6 percent. ■ Unemployment initially rose mostly because of a large number of layoffs and plant closings in 2008 and 2009. ■ Long-term unemployment (defined as being unemployed for more than 26 consecutive weeks) rose to a historic high; during a typical month since 2010, roughly 40 percent of unemployed people have been unemployed for more than 26 weeks.
  • 3. C O N G R E S S I O N A L B U D G E T O F F I C E Unemployment Rate, 1981 to 2013 (Percentage of labor force) 0 2 4 6 8 10 12 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
  • 4. C O N G R E S S I O N A L B U D G E T O F F I C E Long-Term Unemployment Rate, 1981 to 2013 (Percentage of labor force) 0 2 4 6 8 10 12 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 All Unemployed Unemployedfor MoreThan 26 Weeks
  • 5. C O N G R E S S I O N A L B U D G E T O F F I C E RelationshipBetween the UnemploymentRate and the Long- Term Unemployedas a Share of All Unemployed, 1982 to 2011 (Long-term unemployment as a percentage of all unemployed)                      0 10 20 30 40 50 0 1 2 3 4 5 6 7 8 9 10 11 12 Unemployment Rate (Percent)  1982 to 2007  2008 to 2011 2008 2009 2010 1983 1982 2011
  • 6. C O N G R E S S I O N A L B U D G E T O F F I C E Employment-to-Population Ratio, 1981 to 2013 (Percent) 0 10 20 30 40 50 60 70 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
  • 7. C O N G R E S S I O N A L B U D G E T O F F I C E Employment-to-Population Ratio for Men and Women, 1981 to 2013 (Percent) 0 10 20 30 40 50 60 70 80 1981 1986 1991 1996 2001 2006 2011 0 10 20 30 40 50 60 70 80 1981 1986 1991 1996 2001 2006 2011 Men Women
  • 8. C O N G R E S S I O N A L B U D G E T O F F I C E Causes of High Unemployment and Long-Term Unemployment ■ Weak demand for goods and services as a result of the recession and its aftermath ■ Mismatches between the needs of employers and the skills and location of the unemployed ■ Incentives from extensions of unemployment insurance (UI) – Reduced incentives to take jobs – Increased incentives to stay in the labor force and therefore be counted as unemployed (rather than being counted as out of the labor force) ■ Real and perceived erosion of skills and motivations of the long-term unemployed
  • 9. C O N G R E S S I O N A L B U D G E T O F F I C E Gross Domestic Product Gap, 1981 to 2024 (Percentage of potential gross domestic product) -10 -8 -6 -4 -2 0 2 4 6 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023
  • 10. C O N G R E S S I O N A L B U D G E T O F F I C E Outlays for Unemployment Benefits, by Fiscal Year, 2000 to 2024 (Billions of dollars) 0 20 40 60 80 100 120 140 160 2000 2003 2006 2009 2012 2015 2018 2021 2024 Emergency Benefits and Federal Additional Compensation Regular and Extended Benefits [Labeling corrected on March 13, 2014]
  • 11. C O N G R E S S I O N A L B U D G E T O F F I C E Consequences of High Unemployment and Long-Term Unemployment ■ Reduced earnings after job loss – Workers’ earnings would be lower for many years after job loss ■ Lower long-term earnings for workers entering the labor force during periods of high unemployment ■ Job loss is bad for health – Increased rates of depression and death ■ Some evidence that recessions are good for health in general ■ Effects on educational attainment and future earnings of workers who lose jobs
  • 12. C O N G R E S S I O N A L B U D G E T O F F I C E Policies to Reduce Unemployment ■ Fiscal policies ■ Training policies ■ Unemployment insurance ■ Job-search assistance
  • 13. C O N G R E S S I O N A L B U D G E T O F F I C E Some Fiscal Policies to Reduce Unemployment ■ Household assistance – Increased UI expenditures – More generous refundable tax credits – Reduced employees’ payroll taxes ■ Business assistance – Reduced employers’ payroll taxes – Allowing full or partial expensing of investment costs ■ Aid to state governments
  • 14. C O N G R E S S I O N A L B U D G E T O F F I C E Training Policies to Reduce Unemployment ■ General workforce programs ■ Sectoral programs – Health care – Information technology ■ Programs focused on youth – Career academies – Apprenticeship programs ■ Programs focused on displaced workers
  • 15. C O N G R E S S I O N A L B U D G E T O F F I C E Modifying UI Policy to Reduce Unemployment ■ Extend the duration of UI benefits ■ Offer reemployment bonuses ■ Establish personal reemployment accounts ■ Offer short-time compensation ■ Target services ■ Use UI benefits to temporarily place the unemployed in jobs with private-sector employers ■ Offer wage/earnings insurance
  • 16. C O N G R E S S I O N A L B U D G E T O F F I C E Assistance to Unemployed Workers ■ Increased job-search assistance ■ Skill certification programs ■ Housing mobility assistance

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