Don't dismiss the long-term unemployed

The long-term unemployed matter. That might be the conclusion from a trio of blog posts by New York Fed researchers, over at Liberty Street Economics. (The authors are Rob Dent, Samuel Kapon, Fatih Karahan, Benjamin W. Pugsley, and Ayşegül Sahin.)

In the first part they compare the observable characteristics of four groups of potential workers: the short-term unemployed, the long-term unemployed, nonparticipants who say they want a job, and nonparticipants who say they don't to work. In particular, they compare the distributions of gender, age, race, education, occupation and industry across groups (see the charts below).

The authors conclude that "on the basis of these observable characteristics, we find that long-term unemployed workers are not less attached to the labor market than short-term unemployed workers" (emphasis mine).

The emphasis on observable characteristics is important. There might be other, unobserved characteristics that affect the supply or demand of labor, and so it would be incorrect to imply that labor force attachment, employability, etc. is the same across groups. Motivation and family responsibilities are two examples, off the top of my head, of such unobserved characteristics (unobserved to us, not to job seekers or employers). The authors do acknowledge this: "While there may be unobservable characteristics of long-term unemployed workers that make them less attached to the labor force..."

In the second part the authors find that the short-term unemployed are more likely to find a job than the long-term unemployed, both within one month and within one year. At the one-month horizon, the long-term unemployed and nonparticipants who want a job have almost the same odds of finding a job, but at the one-year horizon long-term unemployed are more likely to find a job than nonparticipants. Finally, they estimate the dropout rate (fraction who leave the labor force) by group, with the expected results.

In the third part, they find little evidence that long-term unemployed exert less pressure on wages than short-term unemployed.

My take from those blog posts is that the long-term unemployed are not like non-participants, and shouldn't be dismissed as just "dropouts by another name." They are probably somewhere between short-term unemployed and nonparticipants, in terms of likelihood of getting a job, and not starkly different from other groups in terms of demographic characteristics.