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3 myths about the long-term unemployed

Rick Newman
The Exchange
A diner sits next to a help wanted sign at a McDonalds restaurant in the Brooklyn borough of New York, March 7, 2014. U.S. job growth rose more than expected in February, easing fears of an abrupt slowdown in economic growth and keeping the Federal Reserve on track to continue reducing its monetary stimulus. REUTERS/Keith Bedford (UNITED STATES - Tags: BUSINESS EMPLOYMENT SOCIETY)

For many working Americans, life is finally getting back to normal following a deep recession and stutter-step recovery.

But one group has been left out of the post-recession economy — the long-term unemployed.

Most states provide half a year — 26 weeks — of unemployment insurance for people who lose their jobs. At the onset of the recession, the federal government stepped in to extend jobless aid for as long as 99 weeks in total. But the federal benefits expired at the end of 2013, and despite a push by President Obama and his fellow Democrats, Congress has yet to renew them. The Senate now seems poised to pass a bill that would restore federal jobless aid through 2014, though it’s not clear whether the House of Representatives would go along with it, or when it might even consider such a bill.

There are nearly 4 million Americans who count as the long-term unemployed, which means they’ve been out of work for 27 weeks or more and are still looking for a job. (Once you give up looking, you’re no longer counted as unemployed.) About 1.5 million of those folks would qualify for federal benefits if they were restored. For as much ink as these struggling Americans may generate, however, they remain poorly understood. Here are three myths about the long-term unemployed:

They’re mostly slugs. With federal jobless benefits cut off in 2014, some economists expected a dip in the unemployment rate. Here’s why: In order to receive unemployment benefits, recipients have to actually be looking for a job. But if you’re only pretending to look for a job in order to collect federal aid — as some critics of the program contend — then it makes sense you’d retreat to the couch once there were no benefits to collect. And once you’re no longer looking for a job, you’re no longer counted in the unemployment numbers.

If you took all the people collecting federal jobless benefits out of the unemployment equation, the unemployment rate in February would have fallen to about 5.8%. Factoring out half of them would have left an unemployment rate of 6.3%; a quarter of them, 6.5%. In reality, the unemployment rate in February was 6.7%, exactly the same as it was at the end of 2013. By inference, basically none of the long-term unemployed bailed out of the labor force once there were no federal benefits to collect. Presumably, those who were “looking for a job” before are actually — well, looking for a job.

They never get hired. Since it’s generally harder to get a job the longer you’re out of work, we tend to think of the long-term unemployed as being forever unemployed. Not true. “It is worth noting that a significant number of long-term unemployed do get jobs every month,” Bank of America Merrill Lynch pointed out in a recent report. Data from the Labor Dept. shows more than 10% of people who are out of work for 27 to 52 weeks get a job every month, as this chart shows:

The “job-finding” rate is higher for those who spend less time on the sidelines. But still, hitting six or nine months of unemployment doesn’t consign you to joblessness forever. Those new jobs may not necessarily be good jobs paying what people earned before, but they do end the stigma of being "unemployable" and rotate the jobless back into the working world.

It’s an intractable problem. The long-term unemployed are getting a lot of attention now because of the decision to cut off benefits. But the problem has been improving more than the headlines suggest, as this chart, showing the total number of long-term unemployed, demonstrates:

 Source: Bureau of Labor Statistics

The number of long-term unemployed peaked in 2010 at 6.8 million, and has since fallen to 3.8 million — a 43% decline. A “normal” rate of LTU is probably between 1.5 million and 2 million, so there’s still a way to go. But the trend is moving in the right direction.

In terms of federal benefits, the shrinking number of long-term unemployed is both good and bad news for those still looking for a helping hand. With fewer people to help, the cost of federal jobless aid — about $9 billion per year for 2014 — is lower than it once was and more palatable to politicians who want to cut spending. As the problem shrinks, however, so does a sense of urgency about addressing it. And we’re not yet at the point where it’s a problem we can comfortably ignore.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.