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The Rise in Structural Unemployment in the US Recession

This article is more than 10 years old.

I regard this as really rather sad.

Felix Salmon notes that there's been a rise in structural unemployment in the US in the recent recession. Which indeed there has been. As long as we accept the similarity between structural unemployment and long term unemployment, a connection that in the world of economic wonkery is generally accepted.

What’s going on here is pretty clear. For short-term unemployment, little has changed: the structural rate has been around 2% for decades. But look at any of these charts and they show structural unemployment at an all-time high, with the situation getting much worse the longer the duration of unemployment. Overall, the structural rate of unemployment is now more than 8%, which means that we’ll only dip below that level temporarily, during cyclical upturns.

All entirely true however Felix is overlooking one major point:

And what I fear is that the Great Recession has moved the US towards European levels of structural employment, without any kind of Euro-style social safety net.

Ah, but in one crucial respect, during this recession the US has moved much closer to having a Euro-style social safety net. Recall, unemployment benefits were extended from their usual 26 weeks to 99 weeks. Now one can argue about whether this should have been done or not but the effect was always understood, even if denied in some parts. From Richard Layard, the English economist and expert on this very point of long term unemployment:

The evidence for the first proposition is everywhere around us. For example, Europe
has a notorious unemployment problem. But if you break down unemployment into shortterm
(under a year) and long-term, you find that short-term unemployment is almost the same
in Europe as in the U.S. – around 4% of the workforce. But in Europe there are another 4%

who have been out of work for over a year, compared with almost none in the United States.
The most obvious explanation for this is that in the U.S. unemployment benefits run out after
6 months, while in most of Europe they continue for many years or indefinitely.
The position is illustrated in Figure 1. The vertical axis shows how long it is possible
to draw unemployment benefit, and the horizontal axis shows how long people are actually
unemployed, as measured by the percentage of unemployed who are out of work for over a
year. The association is close, and it remains close even when we allow statistically for all
other possible factors affecting the duration of unemployment.1

Euro-style social safety nets encourage Euro-style long term or structural unemployment. The US moves to a more Euro-style social safety net on the one specific part of it that encourages exactly that long term unemployment then why should anyone be surprised that the US starts to get Euro-style long term unemployment?

To think that it would be otherwise is just sad.