If you’ve been out of work for a long time, you know how tough it is to get rehired. A new study by three Princeton economists offers a discouraging look at just how hard it is.
The sobering news: Only about 1 in 10 of the long-term unemployed—those out of work for six months or more—get hired every year, the study found.
Being out of work for an extended period hurts job seekers in two ways, according the researchers, led by Alan Krueger, a labor market economist and former chief White House economic advisor.
First, these job candidates get discouraged and, over time, tend to look less intensively than those who lost their jobs more recently. When they do find a job opening, those out of work for extended periods are viewed more skeptically by employers who worry that their skills may be out of date, or that a long stretch out of work indicates the candidate is somehow less qualified.
As a result, these workers remain “on the margins of the labor force,” the researchers said. Even as the economy continues to recover and the overall jobless rate declines, these long-term jobless workers aren’t being helped by the improved job prospects for those out of worker for a short period.
One indication: The pace of hiring isn’t any better for the long-term jobless in regions with a strong local job market. In states with the lowest unemployment rates, job seekers out of work for long periods were no better off than those in states with high rates of unemployment.
Many such job seekers simply give up altogether, and are no longer counted as unemployed because the Labor Department no longer counts them as part of the overall labor force. While the official unemployment rate has fallen steadily over the past year, the departure of these so-called discouraged workers has tended to depress the “official” unemployment rate.
Some economist have suggested those workers will eventually return to the labor pool, as they have in the recoveries from past recessions. But the Princeton researchers say this time may be different.
“A concerted effort will be needed to raise the employment prospects of the long-term unemployed, especially as they are likely to withdraw from the job market at an increasing rate,” Krueger wrote in the paper, which was co-authored by his Princeton University colleagues Judd Cramer and David Cho.
Some 3.8 million people without jobs were actively looking for work for at least 27 weeks, nearly three times the number just before the Great Recession began.
The Princeton study also has important implications for Federal Reserve officials, who have recently eased up on the central bank’s historic efforts to suppress interest rates to boost the pace of hiring. As the jobless rate continues to fall, extended the five-year-old, low-interest rate policy raises the risk of higher inflation, which the Fed has also pledged to contain.
(Read more: Chart: What’s the real unemployment rate?)
Fed officials have used a benchmark figure of 6.5 percent as a threshold for employment levels that could begin to tighten the supply of labor and add upward pressure on wages, a key driver of inflation. The researchers suggest that the Fed would do better to watch the jobless rate for short-term unemployment as a bellwether for inflationary wage pressures.
“Further declines in short-term unemployment would be expected to be associated with rising inflation and stronger real wage growth,” the economists wrote.
But Fed officials are divided on whether short-term unemployment is a better indicator of inflation pressure than the overall rate.
In her first press conference as Fed chair, Janet Yellen on Wednesday said that she remained concerned about Americans who have been out of a job for extended period. But she said the economic research showing they tend to have less impact on wage inflation was not conclusive.
“I’ve seen research along those lines,” Yellen told reporters. “But I think it would be tremendously premature to adopt any notion that says that that is an accurate read on either how inflation is determined or what constitutes slack in the labor market.”