Cyclical Unemployment Disappears

The most important comment Ben Bernanke made at his recent press conference was that cyclical unemployment could become structural unemployment. The weight of joblessness on GDP will grow unbearably, if that happens.

Bernanke said that the halting start of the normal recovery process has not helped the economy add jobs. More people are out of work for a year or more. Those people lose skills, the ability to relocate or the will to find new work. They become left behind. A pool of millions of Americans sinks to the bottom of the income ladder. They become part of a permanently broken work market. The litany of problems may be why the Fed predicted unemployment will remain high for the next three years.

The Pew Fiscal Analysis Initiative has just issued a report that shows the pool of Americans unemployed for more than a year, as a portion of the total pool of jobless people, has risen to more than 30%. A review of government unemployment data, which reach back to 1967, show this figure has been as low as 5% but has never before moved higher than 14% — until the past two years.

Pew reports that people over 55 are most likely to be out of work for longer than a year. Perhaps this is because of age discrimination. Or, older workers may be poor candidates to be retrained for new work. No matter what the reason, these people are near enough to retirement that they may never find a job. That means most of these people will retire with little or no savings. This is a strain on the system of government assistance — the “safety net.” These people also will be in enough financial trouble to cease to be active consumers.

Another part of the report shows that having an education does not mean a person can find work quickly. The long-term unemployed with college degrees are a third of the total jobless pool of people with that level of education. Among those with less than a high school degree, the figure is 38%. The rewards of years in school have been swept away by the lack of demand for workers of any kind.

Bernanke’s assessment of the metamorphosis of the job market is accurate. The downturn has frozen many people out of work. A jobless recovery will keep many of these individuals outside the labor force for years. And some will never find suitable work.

Douglas A. McIntyre