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Tue November 16, 2010
Life on the sidelines: the long-term unemployed
By JOHN YDSTIE
There's no shortage of dire numbers for job seekers these days: Nearly 15 million Americans are out of work, another 9 million are under-employed and the jobless rate seems to be stuck at 9.6 percent.
But, there's another statistic that gets less attention the number of people who have been unemployed for six months or more the long-term unemployed. This number is at levels not seen since the Great Depression.
What happens when workers and the skills they embody are sidelined for so long?
Being out of work for more than six months isn't for the faint of heart.
"I really think that if people aren't going through this right now, they don't get it," says Shelia Egan, a 47-year-old single mother who has been out of work for more than a year. "They don't see how difficult it really is."
Egan sold pharmaceuticals for a big European firm for 11 years and earned a six-figure salary. Prior to that, she had applied for only five jobs during her career.
"And of those five jobs, I got four of them," she says. "And it has been very jarring to apply for a job that asks for one or two years [of] experience, [and] you have 10 and you don't even get a call."
Of course, Egan is not alone. Over 40 percent of the unemployed more than 6 million Americans have been out of work for than six months or longer, according to the Bureau of Labor Statistics.
Those numbers came alive for Egan at an outplacement center she used to visit regularly.
"Every Wednesday morning, this room would fill with these incredibly talented, motivated, optimistic people," Egan says. "And I would just sit and look around the table and think, I cannot believe these people don't have jobs. And week after week they would come back and I would just be stunned at the amount of talent sitting in this room, unemployed."
A Lesson From Europe
Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics, has studied the effects of long-term unemployment in Europe. It became a huge problem there in the 1980s and 1990s because more than half of all jobless workers were experiencing long-term unemployment during that period.
"The wasted human capital is just tremendous," Kirkegaard says. "Once people become unemployed for long periods of time, you start seeing a serious depreciation or reduction in their skill levels in the human capital that they carry."
That happens in several ways, he says. One is when people are forced to look for jobs outside of their current field.
"If you shift from being an autoworker to being a nurse, you basically lose all the human capital that you embodied as a skilled autoworker," Kirkegaard says.
A Drag On The Economy
Now, if that unemployed autoworker became a skilled nurse, that could be a good thing. But in the current situation, when large numbers of people are being forced to trade down from high-skilled jobs, the sidelining of their old skills becomes a big drag on the economy.
And even if people stay in their current occupation, skills can atrophy after a worker is unemployed for long periods, Kirkegaard says.
"They essentially lose contact with the latest developments in their own field," he says.
Egan worries she's falling behind on news about medical developments, which could hurt her chances of being rehired as a pharmaceutical sales rep.
"Especially when you're looking at medical and scientific journals, they often times require a subscription, or a pretty hefty annual fee," she says.
Accepting Lower Pay
Those are expenses Egan can't afford right now. She is resigned to the prospect that even if she does land another job selling pharmaceuticals, it'll be at lower pay.
Of course, it's not just individuals that suffer when valuable human capital is lost or sidelined.
"It is a tremendous drag on overall economic growth," Kirkegaard says. "There's no doubt about that."
Europe demonstrated that in the 1980s and 1990s, when high levels of long-term unemployment meant it grew slower than the United States.
Kirkegaard warns that the level of long-term unemployment in the U.S. is unlikely to fall back to pre-crisis levels anytime soon, so the U.S. must do more to keep skill levels high for those workers. That means spending much more on effective retraining, he says.
"If there's one thing where it is sensible for the government to have a bigger deficit in the short term in order to avoid long-term lower economic growth, it is in combating long-term unemployment," Kirkegaard says.
He says the federal government has had the right idea, putting more money into community colleges recently. But that has been offset by cuts at the state and local levels during this deep downturn.
Now, with controlling deficits on the front burner politically, finding money for retraining to protect the nation's human capital will be a challenge.