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The steep costs of long-term U.S. joblessness

Barack Obama is fretting about it. So is Ben Bernanke.

The focus of their concern is long-term unemployment. The Great Recession wiped out millions of jobs, and in many countries, relatively few have come back. That has left millions of workers unemployed for months and even years.

There is a social cost. There is also a steep economic cost.

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"Long-term unemployment is an economic issue because it reduces growth in the short run and potential growth in the long run," Wells Fargo Securities chief economist John Silvia pointed out in a research note. "In the short run, it leads to lower consumer spending; in the long run, it leads to lower productivity of workers."

The toll is particularly severe in the United States, a country whose social safety net isn't designed to deal with long bouts of joblessness. Roughly half of the 14 million unemployed Americans have now been out of work for more than six months. And the average length of unemployment has hit a record high of more than 40 weeks.

Mr. Silvia says the trend comes with disturbing social implications. The participation rate in the labour market is changing. Older workers are working longer, often well past retirement. Younger workers have delayed the start of their careers. The number of 16-24 year-olds who've given up looking for work to stay in school or simply dropped out has shot up dramatically since the recession began.

This will make them less employable, the longer the stay out of the labour market, and a burden on society.

Mr. Silvia's conclusion about why the jobs have been so slow to come back in the U.S. is that the problem is structural. It's partly a mismatch of skills and partly a geographic disconnect. A large number of the jobs that disappeared were in home construction and related industries. And with the housing collapse, their skills aren't needed. But computer programmers and other tech experts are still in high demand.

Other experts reject the notion that what's happening is a structural problem. Lawrence Mishel and Heidi Shierholz of the Economic Policy Institute in Washington argued in a recent briefing paper that while it's true that more educated and better skilled workers are better off, they point out that all workers from all education categories have seen unemployment rates roughly double.

"In other words, there has been an across-the-board drop in demand for workers at all skill levels," they concluded. "It is not that this country is lacking the right workers, it is lacking work."

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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