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

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