Congressional Budget Office
The Rise in Long-Term Unemployment:
Causes, Effects, and Policy Options
February 20, 2014
Pres...
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 ...
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...
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
...
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...
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
...
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)...
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...
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 ...
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
(Billion...
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 e...
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
■ ...
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
– Inc...
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
■ ...
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 b...
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
■ Ski...
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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

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

  1. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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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