Joblessness low, but lasts longer

For American workers, the risk of layoffs is down from previous recessions, but the risk of staying jobless is up.

By most measures, America's downturn looks unusually mild.

Unemployment remains low compared to the previous two recessions. Economic restructuring looks less severe. Today's jobless dotcom, telecom, and service-sector employees are younger, better-educated, and more employable than the laid-off factory workers of the 1980s.

So why are so many of them worried?

Because this recession is turning out to have its own peculiarities. It's hitting younger workers harder than older workers. It blends with the uncertainties caused by last September's terrorist attacks. And, while the risks of being laid off have fallen from previous recessions, the risks of staying unemployed after a layoff are rising.

As the nation nears the Labor Day weekend and, perhaps, an economic recovery, workers seem unusually jittery.

Consider Randy, a jobless Detroit resident. Ever since returning to Motor City two years ago, he has struggled to find a well-paying job. Never mind that he has a master's degree in sociology or that he's worked in a car dealership and a book bindery. When his 15-year-old car broke down late last month and he couldn't get to his job, his supervisor told him his position had been eliminated.

"I've pretty much resigned myself that I'm not going to get a decent job," says Randy, who withheld his last name.

This trend of higher long-term joblessness contradicts conventional wisdom.

Normally, the higher unemployment goes, the more time the average worker spends unemployed. That's what happened during the late 1960s and 1970s. By November 1982, when unemployment hit a postwar high of 10.8 percent, the average jobless stint reached 20 weeks – eight weeks longer than during the recession of the early '70s.

In the 1990s, that relationship began to break down. In a joint study last year, economists Katharine Abraham and Robert Shimer found that unemployment fell to levels of the 1960s, yet the jobless stint remained 50 percent longer. The biggest change: a huge jump in workers unemployed six months or more.

"Unemployment may not be that high, but those who are losing their jobs are paying a high price," says Jeffrey Wenger, economist with the Economic Policy Institute, a liberal think tank in Washington.

Mr. Wenger says that, as of June, 1 in 5 jobless workers had gone without work for at least six months. While other recessions have seen higher levels, none of the past four has reached such levels so quickly. This comes even at a time when many economists believe the nation is no longer in a recession.

The effects go beyond lost wages and a decline in living standards.

"It's not healthy and it's a waste from an economic standpoint," Wenger says. People out of the work force for long periods of time can't keep their skills current in fast-moving industries. And they become stigmatized because employers begin to wonder why they've been out of work for so long.

The jump in long-term unemployment stems largely from women's growing role in the labor market. Once content to drop out of the work force if they lost their jobs, women increasingly continue to seek new employment, economists Abraham and Shimer argue. In times of slow job creation, that boosts both the unemployment rate and the average time spent between jobs.

But it's another demographic group that has borne the brunt of this downturn. As of January, just over half of those workers losing their jobs were under 25, according to a report by the Center for Labor Market Studies at Northeastern University in Boston. The biggest losers are teens, who apparently are seeing adults snap up their service-sector jobs.

As of July, the teen unemployment rate stood at 17.7 percent, nearly four times the rate for workers 25 and over, according to the Bureau of Labor Statistics (BLS).

Even when times are good, there's some evidence the economy retains more labor volatility than it used to. Consider displaced workers: those who lost their jobs because their company closed or moved, their shift was eliminated, or there simply wasn't enough work to do. Typically, during a boom, fewer businesses close and the displacement rate falls.

That's what happened during the peak of the 1980s economic cycle, when the displacement rate fell to 5.5 percent. But at the peak of the booming '90s, when unemployment hit a 30-year low, the displacement rate dipped only to 6.1 percent. To some, it's a sign that factory closings and other displacements are more of a fact of life in today's economy.

"Even when the unemployment rate is historically low, this job loss – this churning – is still occurring," says Ryan Helwig, a BLS economist.

Not everyone believes the nation's demand for workers has changed fundamentally. "What we're seeing is fairly typical cyclical period," Henry Farber, an economist at Princeton University. "In the long run, there's not going to be a big change – barring any further jolt like Sept. 11."