Lower Unemployment Doesn’t Tell the Whole Story

Since peaking at 10 percent in October 2009, the U.S. unemployment rate has improved significantly. At the end of 2013, the jobless rate was 6.7 percent, its lowest point in five years. But that figure may overstate the actual level of utilization of the nation’s labor resources for at least two reasons.

First, there is a thin line between being officially counted as unemployed and being counted as out of the labor force. This issue may be particularly severe among those who have been out of work for a long time. Consider, for example, that about 1 million more people are marginally attached to the labor force than before the recession, and much of that increase came from people who had previously been unemployed for more than half a year. If these additional marginally attached people were counted as unemployed, then the effective unemployment rate would be higher.

Second, since 2007, about 3 million more people say they are working fewer hours than they want to, either because of slack work conditions or the unavailability of full-time jobs. If this additional stock of involuntary part-time workers were counted as being at least partly unemployed, then the effective unemployment rate would be even higher. An upper bound on the possible distortion to the unemployment rate caused by these effects can be seen by comparing the official unemployment rate statistic known as U-3 with the alternative unemployment rate measure known as U-6.

Long-term unemployment

The Great Recession caused the largest surge in joblessness since the 1930s. About 3.4 million more people were unemployed at the end of 2013 than before the recession. In more normal times, jobs are created fast enough to absorb most people who are looking for work within just a few months. In the years before the Great Recession, only about 20 percent of unemployed people had been searching for a job for more than six months. But this figure rose sharply after the recession, reaching 45 percent in 2010 and 37 percent at the end of 2013. Moreover, those out of work for more than six months are getting a job at a much lower rate than before the recession.

The economic and human costs of long-term unemployment are disturbing. A long spell of unemployment can create significant financial stress. People who endure long periods of unemployment tend to have a more difficult time reentering the workforce even after the economy improves. Long periods of unemployment can erode workers’ skills, making it more difficult to find a comparable job. Once they do find a job, their wages are typically lower than before. A growing body of research, including a 2013 Urban Institute study (see More information), also points to potential negative effects on mental health and family stability.


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