From the Financial Times, US unemployment: A long-term trap:
Subtitled, “The level of extended joblessness is dangerously high, with grave consequences for the economy.” After sharing some stories of people who are suffering in Obama’s economy, the FT article continues:
But the travails of Ms Tevyaw, Mr Robideau and Mr Bingham are not confined to their corner of New England. The stubborn persistence of long-term joblessness – more than six months without a job – has emerged as one of the defining features of the US economy in the aftermath of the financial crisis and recession.
While short-term unemployment has essentially returned to its pre-recession levels of about 4 per cent, it is elevated long-term unemployment that has kept the overall US jobless rate well above the 5.5 to 6 per cent level that many economists believe to be consistent with America’s traditional economic potential. …
The concern within the Obama administration, the Federal Reserve and private US economists is that the high levels of long-term joblessness will not eventually be cured by the slow, steady economic expansion. It is that something fundamental has changed in the US labour market that has moved it in the dangerous direction of “hysteresis” or “sclerosis”. Those terms have typically been used by economists to describe atrophied job-market conditions in parts of Europe – or Japan in the 1990s – but not America.
The implications for the US are huge. If a greater share of Americans remains trapped in extended joblessness, it would likely limit the country’s future economic growth potential, strain its welfare resources – and create a dilemma for the Fed.
According to the March jobs report, there were 3.7m Americans who have been without work for 27 weeks or longer. This represents 35.8 per cent of the overall pool of the unemployed, still well above pre-recession levels of around 18 per cent but below the peak of about 45 per cent four years ago. America used to have a share of the long-term unemployment far below the average of other advanced economies but by 2012 it had almost closed the gap with the mean for OECD countries. (emphasis mine)
When we combine this development with the news this week that China will overtake the U.S. as the world’s number one economy this year, much sooner than predicted, King Barack can take another victory lap. Mission accomplished, Sir!