In a week dominated by President Barack Obama’s State of the Union address, which underlined his commitment to expanding the opportunities of the middle class and putting America’s jobless back to work, the country’s long-term unemployed have been put in the spotlight. Not only did he call for for Congress to “restore the unemployment insurance you just let expire for 1.6 million people,” but on Friday the president pressured big business and the federal government to hire greater numbers of long-term unemployed Americans.
Nearly eight million jobs were lost during the December 2007 through June 2009 recession — the greatest economic downturn in U.S. history since the Great Depression. In recent months economic reports indicated the economic recovery has picked up; gross domestic product expanded at a 3.2 percent annual rate in the fourth quarter following the third quarter’s 4.1 percent increase, the manufacturing sector has rebounded, and the stock market reached recorded highs last year. While the housing market has recently hit headwinds, with rising prices hurting demand, throughout much of last year, low-interest rates and pent up demand propelled home sales and boosted the construction industry, which in turn strengthen GDP. With the economic recovery taking small steps forward, job creation grew stronger toward the end of 2013, which gave consumers more confidence to increase their outlays.
But, even with these economic gains, the tough problem is the lingering high numbers of long-term unemployed and the low labor market participation rate. As the White House stated in its long-term unemployment fact sheet, even though businesses have added 8.2 million jobs over the past forty-six months, the “remaining legacy of the recession is the crisis of long-term unemployment.” The problem is that hiring a new employee who currently works in the field is a far less risky choice than a worker who has been out of a job for months or even years, especially as businesses are still hesitant about the economy. “If you’re not working — and you’re not improving your credentials — it’s harder to find a job. That’s just simply reality,” Naroff Economic Advisors chief economist Joel Naroff told CNBC.
The fact sheet cited “one recent study,” which showed that the interview “callback” rate for “otherwise identical resumes” decreases noticeably as the length of the unemployment period increases; callbacks were 45 percent lower for those unemployed for eight months compared to those unemployed for just one month. The study in question is research conducted by the University of Toronto, McGill University, and the University of Chicago. The researchers used 12,000 fictitious resumes to respond to real job openings in 100 cities.
According to the Department of Labor’s Employment Situation Report, the number of long-term unemployed, or those jobless for twenty-seven weeks or more, stood at 3.9 million people.
“It’s a cruel catch-22. The longer you’re unemployed, the more unemployable you may seem,” stated the president. But, “just because you have been out of work for a while does not mean that you are not a hard worker,” Obama said at a White House event. “It just means you had bad luck or you were in the wrong industry or you lived in a region of the country that’s catching up a little slower than others in the recovery.”
Leaders of more than twenty large companies met with the president on Friday at the White House, agreeing to not discriminate against long-term unemployed and signing a memorandum prohibiting government agencies from using long-term unemployment as a basis for denying an applicant a job. Those CEOs were among 300 companies that have agreed to a one-page-long directive on the “best practices for recruiting and hiring the long-term unemployed,” which stressed that businesses review current recruiting practices to ensure a broad net is cast and encourage all qualified candidates to apply. Signing companies ranged from American International Group (NYSE:AIG) and Bank of America (NYSE:BAC) to others in various industries, like Apple (NASDAQ:AAPL), General Motors (NYSE:GM), Boeing (NYSE:BA), McDonald’s (NYSE:MCD), and Wal-Mart (NYSE:WMT).
In addition to the directive, the fact sheet also identified the administration’s $150 million in grants to be put toward “Ready to Work” Partnerships.” In conjunction with the Department of Labor, partnerships between employers, non-profit organizations, and America’s public workforce system will provide long-term unemployed individuals with a number of services, including job training.
Currently, the unemployment rate is 6.7 percent, thanks to 3 percentage-point decline between November and December. This level marks the first time in Obama’s presidency that the jobless rate has been below 7 percent. But still, the unemployment rate is stubbornly high. Plus, that decrease did not reflect an improvement in the labor market, but rather a plunge in the labor force participation rate. In December, the labor force participation rate — the share of working-age Americans who were employed or looking for work — dipped 0.2 percentage points to 62.8 percent, a level that nearly matches a thirty-six-year low. Over the course of 2013, the labor force participation rate has fallen 0.8 percentage points, meaning far more Americans have dropped out of the labor market than found new jobs.
Gene Sperling, director of the National Economic Council, told Reuters that the unemployment rate would be closer to 5 percent were it not for the barriers to finding jobs that the long-term unemployed face. “We are trying to address what we feel is the heart of that negative cycle, which is the potential stigmatization of people merely for the sake that they are long-term unemployed,” he added. But when asked for the White House’s projection of how many unemployed individuals could land interviews as a result of the changes announced Friday, Sperling said: “I can’t give you an exact number. But these are companies that employ millions and millions and millions of people, and are going to be hiring more people, and I think this is going to have a significant impact.”
The Obama administration also termed the expiration of the extended unemployment insurance program a step backwards. No longer are long-term unemployed Americans — who have used up the traditional benefits lasting twenty-seven weeks, able to collect emergency and extended payments. The most recent extension of that program was passed by Congress and signed into law by then President George W. Bush in late 2008 as the number of layoffs soared, pushing the number of people filing for unemployment insurance to a sixteen-year high. However, the Bush-era extension expired on December 28, meaning the 1.6 million people who were collecting emergency benefits lost unemployment insurance. A measure to extend emergency payments passed a key Senate procedural hurdle on January 6, but the Senate then failed to advance the plan as lawmakers disputed how to cover the cost of the benefits and how long they should continue.
More From Wall St. Cheat Sheet:
- Fourth-Quarter Economic Growth Was an Ode to the Consumer
- Immigration Reform: Are the GOP Votes Really There?
- Housing Bubble Deja Vu: Home Flippers Are Making a Killing
Follow Meghan on Twitter @MFoley_WSCS