Are the Long-Term Unemployed on the Margins of the Labor Market?

There is new Brookings research by Alan B. Krueger, Judd Cramer, and David Cho:

The short-term unemployment rate is a much stronger predictor of inflation and real wage growth than the overall unemployment rate in the U.S. Even in good times, the long-term unemployed are on the margins of the labor market, with diminished job prospects and high labor force withdrawal rates, and as a result they exert little pressure on wage growth or inflation.

Consistent with my earlier views, this work is suggesting that many of the long-term unemployed are/have become an economically segmented group.  This is noteworthy too, as it implies the problem is not merely initial discrimination:

…even after finding another job, reemployment does not fully reset the clock for the long-term unemployed, who are frequently jobless again soon after they gain reemployment: only 11 percent of those who were long-term unemployed in a given month returned to steady, full-time employment a year later.

I would consider that evidence for a notion of zero marginal product workers.  Furthermore, in my view (I am not speaking for the authors here), right now further inflation is as likely to harm as to help these individuals.  To ask whether the Fed “should give up” on the long-term unemployed is a biased framing which is more likely to mislead us than anything else.

There is a good piece up at 538:

Krueger and his coauthors, Princeton economists Judd Cramer and David Cho, find evidence that the long-term unemployed aren’t getting jobs even in parts of the country where the job market is comparatively healthy, suggesting that a stronger economic rebound won’t be enough to put them back to work.


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