It is straightforward to enumerate bad effects of being
unemployed for a long time, such as erosion of skills, loss of contacts, and
reluctance of employers to hire a person who has been unemployed for a long
time (this is because employers often use a person’s having been unemployed for
a long time as a signal of lack of commitment to or fitness for employment).
But it is difficult to make a precise estimate of the gravity of the problem.
For one thing, there is no nonarbitrary definition of “long
term.” Is it six months? (Many women are out of the work force for longer
because they have young children, yet do find jobs when they return, albeit
often at a lower wage than if they had remained in the labor force continuously.)
A year? One would have to know the average rate at which job skills erode,
contacts diminish, or potential employers’ suspicions grow, to be able to determine
the economically meaningful cut off.
And even if this hurdle could be surmounted, it is unclear
who actually is “unemployed” and who simply has left the work force (retired
early, become a housewife or house husband and thus substituted household
production for paid work, become disabled, or interrupted work to go to college
or to a professional school). The number of people who are unemployed in the
Bureau of Labor Statistics sense—not employed at present, but looking for
work—understates the number of long-term unemployed, because some of the
long-term unemployed have become discouraged, ceased looking for work, and thus
are no longer counted as unemployed. No one knows for sure how many such
discouraged workers there are, but the Bureau of Labor Statistics estimates
that there currently are 800,000 id rgwn. This actually is rather few relative
to the 5 million long-term unemployed, that is, unemployed who are still
looking for work.
Notice too that people who leaves the labor force are not
necessarily unemployed in an economic sense. Household production is real.
Apart from the obvious examples, a person who retires early to help with
raising a grandchild, thus freeing up the parents to devote more time to paid
work, is productively though not formally employed. This is true even if the
person is still looking for a paid job, and regards his stint as a household
producer as temporary. The difficulty of valuing the household production of
the long-term unemployed makes the cost of long-term unemployment to the
economy difficult to assess, although it is certainly positive.
A final problem in estimating the social costs of long-term
unemployment is measuring the long term. Here one should distinguish between
long-term unemployed in the BLS sense—unemployed for a long time but still
looking for work—and unemployed who have stopped looking for work, whom the BLS
as I said calls discouraged workers. The unemployment rate in the United States
was very high throughout the 1930s, and many of the unemployed must have been
unemployed for years, yet that doesn’t seem to have left a residue of discouraged,
prematurely retired workers. Eventually most of them must have found jobs, and
not just during the World War II labor shortage, since low unemployment
persisted after the war ended. Surprisingly, of the 5 million long-term
unemployed still looking for jobs today, 1.7 million have been unemployed for
more than 99 weeks—and they are still looking. As the economy continues to
recover, assuming it does so, more will look for—and find—jobs. According to
the latest BLS statistics, in the past year the number of discouraged workers
has dropped by 16 percent, from 967,000 to 813,000. That is a promising sign.
Long-term unemployment may turn out not to have a long-term
effect on the economy. Or may—for even though the economy has improved over the
past year, the number of long-term unemployed (the 5 million) has not declined.
This may reflect a reduced demand for workers, because of automation and (as
Becker points out) decline of manufacturing, which are economic changes
independent, or largely so, of the depressed state of the U.S. economy as