Unemployment Rate To Remain Above 9% Through 2011, Will Remain Above 'Natural Rate' Until 2016

Posted on Monday, January 31, 2011

The jobs crisis isn't going anywhere, according to the latest forecast from the nonpartisan Congressional Budget Office, which puts the national unemployment rate above 9 percent through 2011 and 8 percent through 2012.
Unemployment will fall to a more "natural rate" only in 2016, when CBO estimates it will reach 5.3 percent -- a projection roughly in line with private-sector figures.
"The recovery in employment has been slowed not only by the moderate growth in output in the past year and a half but also by structural changes in the labor market, such as a mismatch between the requirements of available jobs and the skills of job seekers, that have hindered the reemployment of workers who have lost their job," CBO's report says.
The degree to which the unemployment crisis is structural, as opposed to cyclical, is hotly debated by economists, with progressives like Paul Krugman arguing that structural unemployment is a fake problem "which mainly serves as an excuse for not pursuing real solutions." Many argue that the even drop in employment across industries shows that lack of overall demand is the problem, with stimulus spending the answer. Others have said pay disparities between workers with different levels of education show the problem is at least partly structural.
James Galbraith, an economist who teaches at the University of Texas, says CBO's structural unemployment claim is an after-the-fact rationalization for previous failed forecasts. (CBO's 2009 forecast predicted 8 percent unemployment in 2011 and 6.8 percent unemployment in 2012. Galbraith's been beating up on CBO since before then.)
"There never was any reason to believe that employment would bounce back, as CBO had previously forecast, in the wake of the financial meltdown, and no reason now to think that the problem lies with deficient skills for any class of workers," Galbraith told HuffPost. "[The CBO forecast] is a purely mechanical exercise idea based on the fact that in the past we've always rebounded to a natural unemployment rate of 5 percent. What that means is you never take into account that the system broke in any serious way."
The most unusual factor of the jobs crisis is how long some people are going without work. Long-term unemployment has surged since the unprecedented mortgage meltdown that clobbered housing prices and launched the Great Recession in December 2007. Some 6.4 million people -- 44.3 percent of the 14.5 million unemployed -- have been out of work for six months or longer, and 1.4 million have been out of work for two years or longer. This is the worst long-term unemployment situation in the United States since the Great Depression.
CBO's report says the long-term unemployed lose familiarity with developing technologies as their job-finding social networks deteriorate, but it hints at another reason those folks can't find jobs: Employers don't want them because nobody else does. The Congressional Research Service says the 1.4 million "very long-term unemployed" hail from all educational backgrounds.
"Workers who are unemployed for long periods may face even greater obstacles in finding a new job," the CBO report says. "Some employers may assume that long-term unemployment is a signal that a worker is not good at his or her job."
Indeed. Just check out this Craigslist ad for a restaurant manager in Salisbury, Md.: "Must be currently employed or recently unemployed."
As HuffPost has reported, this is a common requirement for many jobs, even if it sometimes goes unstated.

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