Looks like there is going to be a debate on whether or not to extend unemployment insurance. Time to start sharpening the weapons for the ideological and numbers-based part of these arguments.
One key argument you hear is that unemployment is really just about the long-term unemployed. The market is split into a healthy, normal labor market of people who have only been unemployed a short period of time and a pool of long-term unemployed who are unproductive and disconnected to the point where traditional monetary and fiscal stimulus won’t help them. This is behind much of the “zero marginal product” arguments on the structural unemployment discussion. If this is the case, the argument for extending unemployment insurance is going to be a different one than if the labor market is weak overall.
Some have also pointed to the high level of long-term unemployment as evidence that mismatch is a major factor keeping the unemployment rate high. The claim is that those without the skills sought by employers will take longer, on average, to find new employment. However, the data do not back this claim, at least to date. If high unemployment durations were the result of mismatch, the probability of finding a new job should have declined proportionately more for the long-term unemployed than for the recently unemployed. In fact, reemployment probabilities during the recession fell by similar amounts for all durations of unemployment and have edged up by similar increments in the recovery. Again, this pattern is more consistent with weak aggregate demand being the most important cause of high unemployment.
Weisenthal noted that “Unfortunately, in the footnotes to Tarullo’s speech he doesn’t offer a citation for this fact, so we had to go hunting, and found this post by Mike Konczal on the exact question…”
Yup. I addressed this argument in May of this year in that post. One of the graphs I put together in that post, which shows what Tarullo is referencing, is this one:
The difficultly of finding a job has increase for all duration groups, for both the short-term unemployed than for the long-term unemployed, and has stayed that way post-Great Recession. There are big drops in the probability of finding a job for those who have been unemployed for less than 15 weeks. We did a follow-up to that post looking at the data in other ways here.
This reminds me of two things. First, more of an aside, I should be writing some of these blog posts as white papers and pdfs and respectable type stuff so respectable types can cite them. Second, this data ended in April of this year. How has it evolved since then? We were able to get updated data through August from the kind folks at the Bureau of Labor Statistics. Has the chance of getting a job increased for the short-term unemployed, while gotten worse for the long-term unemployed?
No. From the latest data we can see that there’s been no increase in the bifurcation of the labor market. It is still a weak market across the board, even for those who are recently unemployed.
This data is not seasonally adjusted. To double check we aren’t catching seasonal variations, let’s take the average of January to August for the past three years as well as the total of 2000-2007:
Like most economic indicators, the economy was in free-fall throughout 2009, recovered a bit in 2010 and has stayed virtually the same in 2011. There’s a long way to go, and extending unemployment insurance is part of the way to get us there.