The duration of unemployment

Of all of the statistics that measure the economy’s performance, people are most interested in the unemployment rate. When it is low, workers believe their jobs are secure and job seekers think they have good chances for finding jobs. In contrast, when the unemployment rate is high, many of us worry about losing our current jobs.

While many people know the unemployment rate, almost no one knows much about those who are unemployed and how long they have been unemployed. The typical duration of unemployment has government policy implications. If people are only unemployed for short periods of time, the government does not need an extensive policy to deal with the unemployed. People may be able to rely on their own devices to weather the short period of unemployment. They can dip into savings or get help from family members.

On the other hand, if most people remain unemployed for long periods, it is easier to justify a large government program to help these people out. During a long period of unemployment, people will deplete their savings and the short term help they received from friends and family may very well run out. Without a job or the extra help, the unemployed will have trouble paying for their housing, medical, and food costs, creating a need for government assistance.

Let us examine the duration of unemployment using the most current numbers. The current monthly unemployment rate is 3.9%, which is very low by historical standards. The data I refer to in this column also appears in the table below and is available from the Bureau of Labor Statistics. In August 2019, not only are very few people unemployed, but those that are unemployed have not been unemployed for very long. More specifically, 65.6% of those who are unemployed have only been without a job for 14 or fewer weeks. Only about 20% of the unemployed have been in this condition for 27 or more weeks. At least in current times, very few people are unemployed for long stretches of time, so unemployment is not a problem that needs to be addressed in a large way.

However, the short spells of unemployment may only be occurring because the economy is experiencing abnormally good times. Consider the month with the highest August unemployment rate in a generation; in August 2009, after a financial crisis a year earlier, the unemployment rate reached 9.6%. In this month, only 20% of the unemployed experienced a short spell of unemployment. Over half

(53.3%) of the unemployed had been without a job for 15 or more weeks. Once people were unemployed, they had trouble landing jobs. In public policy debates, it was easier to make the case that the government should help the unemployed out in 2009 than it was in August 2019.

Joe McGarrity

It is tempting to look at the 2009 and 2019 data and conclude government programs that assist the unemployed should be more generous when the unemployment rate is high and penny-pinching when the unemployment rate is low. This, however, would be a mistake. The correlation between unemployment rates and the duration of unemployment does not always follow the pattern that we just discussed. Consider the highest August unemployment since 1950; in August 1982, the unemployment rate reached 9.8%. Despite this high unemployment rate, the duration of unemployment spells in 1982, a very bad economic time, is very similar to the duration of unemployment spells in 2019, a very good economic period. Given these numbers, it is harder to justify an overly generous policy toward the unemployed in 1982 than it would have been to justify the generous policy in 2009.

The take away from all of these numbers is that creating good public policy is hard. A simple rule that allows for more generous benefits when the unemployment rate is high is not always justified.

Joe McGarrity is a Professor of Economics at UCA. He can be reached at joem@uca.edu.