Recently, I spoke at the Winter Policy Forum of the National Association of State Workforce Agencies. My presentation—which can be viewed below—drew on material from two CBO reports from 2012, Unemployment Insurance in the Wake of the Recent Recession and Understanding and Responding to Persistently High Unemployment. My presentation reviewed the recent history of unemployment in the United States, including the rise in the unemployment rate that occurred during and after the recession as well as the subsequent slow recovery. The presentation also focused on the unprecedented rise in the number of people who have been without a job for at least 26 consecutive weeks.
The presentation reviewed CBO’s analysis of the main factors behind the increase in both total 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, such as reduced incentives for the unemployed to take jobs and increased incentives for the unemployed to stay in the labor force; and
- Real and perceived erosion of skills and motivations of the long-term unemployed.
All of those factors contributed to the high unemployment rate during and after the recession, but the most important factor, in CBO’s analysis, has been the decline and incomplete recovery of demand for goods and services.
The presentation also reviewed some of the consequences of job loss. Those consequences often include unemployment immediately after the job loss, but also, over the longer term of a person’s remaining career, more unemployment and reduced earnings. Job loss is also correlated with higher subsequent rates of divorce, diminished health (particularly mental health), and increased mortality.
Persistently high unemployment is also bad for new job entrants, even though, by definition, they have not lost a job. Workers that enter the job market during periods of high unemployment have lower earnings for many years than do comparable workers that enter the labor market during better times.
Finally, the presentation examined policy options for reducing the rate of unemployment in general and the rate of long-term unemployment in particular. Much of the high rate of unemployment that still exists stems from continued weak demand for labor, in CBO’s estimation. As a result, expansionary fiscal policies, such as more generous unemployment insurance benefits and temporary tax credits or reductions in payroll taxes, would probably lower the rates of both unemployment and long-term unemployment. Reforms to the unemployment insurance system that maintained the system’s insurance features while also improving recipients’ incentives to find and accept job offers could also reduce unemployment. In addition, the presentation addressed the potential for improvements in job training and job-search assistance to reduce unemployment.
William Carrington is an analyst in CBO’s Microeconomic Studies Division.