Long-term Unemployment in the Time of COVID
by Maria Heidkamp
One year into the COVID-19 pandemic that has wreaked havoc on the nation’s economic and public health, the headline unemployment rate has dropped to 6.2%, but over 4 in 10 workers — 4.1 million individuals — are officially counted as long-term unemployed, or out of work six months or longer. In February 2020, among those age 55 and older, close to half — 47.7% — were long-term unemployed. These headline unemployment and long-term unemployment rates do not fully capture the magnitude of the problems facing the labor market. As Secretary of the Treasury Janet Yellen recently noted, the unemployment rate is down from its peak last April but still almost twice the pre-pandemic rate, and it would actually be closer to 10% if the 4 million workers who have dropped out of the workforce due to caregiving or COVID-related health reasons, plus the 2 million who are underemployed with reduced pay or fewer hours, are added to the roughly 10 million officially registered unemployed. Even though the Federal Reserve has projected the unemployment rate will fall to 4.5% (and reach a pre-pandemic level of 3.5% in 2023), there are currently more than nine million jobs missing from the labor market.
Long-term unemployment has risen much faster in the COVID recession than during the Great Recession of 2007–2009, when it took close to two years to reach similar levels. The demographic profiles of the unemployed and the long-term unemployed often differ, as they do currently. According to a recent Pew Research Center analysis, for the last quarter of 2020, while Black and Hispanic workers had higher overall rates of unemployment, Asian-American workers had the highest rates of long-term unemployment at 46%, followed by Black (38%), white (35%), and Hispanic (34%) workers; one partial explanation for the high long-term unemployment rates among Asian Americans is their disproportionate representation in states such as California and New York, which suffered among the nation’s highest rates of pandemic-related business shutdowns.
And though a major facet of the COVID recession has been its disproportionate impact on women, Pew reports that for the fourth quarter of 2020, the long-term unemployment rates for men and women are comparable for white workers, though there are gender gaps among Black, Hispanic, and Asian-American workers. Black men had higher rates of long-term unemployment than Black women (40% compared to 36%), as did Asian-American men than Asian-American women (48% compared to 43%). Among Hispanic workers, women had higher rates of long-term unemployment than men (38% compared to 32%).
While college graduates and older workers have lower overall unemployment rates, when they do lose a job, they face longer durations of unemployment and are overrepresented among the long-term unemployed. Forty-one percent of job seekers with a B.A. degree or higher were long-term unemployed in the fourth quarter of 2020, compared to a third of workers with less than a high school diploma. Younger workers have higher unemployment rates — 11% for those ages 16 to 24 compared to 5% for those age 45 and older, but workers age 45 and older are far more likely to end up long-term unemployed.
Impacts of Long-term Unemployment
Long-term unemployed job seekers often face bleak prospects for reemployment. Research has found significant differences in hiring for long- and short-term unemployed workers even after taking education, age, and work experience into account; it appears the lengthy period of joblessness may be contributing to their poorer outcomes rather than problems relating to the individual workers. Unemployment duration has both a strong negative effect on the likelihood of future employment and is associated with reduced subsequent earnings. Employers may believe these long-term unemployed workers have skills that have atrophied. Job seekers themselves may exert less effort the longer they are unsuccessful in their search.
The consequences of long-term unemployment have been well documented and include economic as well as mental and physical health impacts for the individual workers as well as negative impacts on families and communities. Long-term unemployed workers have a greater likelihood of growing discouraged and leaving the labor force permanently or enrolling in disability programs. Communities with higher rates of long-term unemployment also tend to show higher rates of crime and violence. Princeton University economists Case and Deaton found strong correlations between declining employment rates and increasing “deaths of despair” — deaths due to high rates of alcoholism, suicide, and drug overdoses, notably for middle-aged white men and women who lack a college degree. These deaths of despair are unique to the United States among advanced economies; the authors posit that little support for displaced workers facing long stretches of unemployment and few opportunities for stable work with benefits like health insurance are factors in these outcomes.
Since late 2015, the Heldrich Center for Workforce Development has run the New Start Career Network, a program that has assisted close to 6,000 older, long-term unemployed New Jerseyans with free access to virtual job search tools and individual and small group coaching provided by trained volunteers. A 2018 survey of the network’s members confirmed the high levels of financial and emotional duress resulting from their long-term unemployment. To cope with their situation, many job seekers reported borrowing money from friends and family, missing mortgage or rent payments, skipping doctor visits, or failing to buy medicine that they or their family members needed. Two thirds of survey respondents experienced stress in family relationships or close friendships. To quote one survey respondent: “Long-term unemployment is mentally, emotionally, and physically distressing — an emotional roller-coaster.” The high levels of stress and emotional turmoil may impair long-term unemployed job seekers’ executive functioning and reduce their social networks, both of which may render their job search less effective.
Addressing Long-Term Unemployment
Compared to peer countries, the United States dedicates fewer resources and offers less assistance to help American workers transition following a job loss; the United States spends 0.1% of Gross Domestic Product on active labor market programs, or a fifth of the Organisation for Economic Co-operation and Development (OECD) average. OECD researchers have found that higher overall spending on active labor market programs is associated with better outcomes in general, as well as more rapid reemployment of dislocated workers. It remains to be seen whether this holds true in a post-COVID-19 labor market and new virtual service environment.
Funding for the U.S. Employment Service, which provides reemployment assistance through the nation’s roughly 2,400 American Job Centers, is inadequate and has been declining in real dollars since 1984 with the exception of a brief period during the Great Recession. The Reemployment Services and Eligibility Assessments program, which provides additional one-on-one Employment Service assistance to Unemployment Insurance recipients who are profiled as being likely to become long-term unemployed, has shown good outcomes based on field experiments, conducted pre-pandemic, which found it cost effective and useful at reducing the duration of unemployment. However, reduced funding for the American Job Centers for job search assistance has resulted in an increase in computerized self-services, which job seekers with limited technology skills find difficulty using.
In addition to reemployment assistance, eligible dislocated workers have access to educational and training supports through the Workforce Innovation and Opportunity Act (WIOA). WIOA provides training to a fraction of potentially eligible individuals. From July 2018 to June 2019, WIOA adult and dislocated worker programs served roughly 1.2 million individuals, but only 226,301 of them received WIOA-supported training — most frequently for truck driving. At the same time (and, of course, well before the COVID recession), there were 11.3 million unemployed adults and 53 million low-income workers. While rigorous evaluations of educational and training programs in the United States have offered scant evidence on the positive impact of training for dislocated workers, there is evidence that job seekers may do better with training directly connected to work, such as on-the-job training, apprenticeships, and sector-based training. Again, it remains to be seen how the COVID recession labor market will support or alter whether training has a positive impact for dislocated workers.
In addition to WIOA funding for dislocated workers, the Trade Adjustment Assistance (TAA) program helps dislocated workers who lose their jobs due to “trade-related disruption.” TAA provides retraining resources along with income support and job search help for eligible job seekers. In FY 2019, TAA served a total of 28,348 job seekers. A comprehensive evaluation of TAA found it was “underutilized and not very effective overall.”
In sum, the American public workforce system, as presently structured, is a piecemeal mix of programs that are inadequate in scale, reactive rather than forward looking, and in need of strategic reform — especially given the current challenge of assisting millions of long-term unemployed job seekers in a pandemic/post-pandemic environment. The temporary infusion of money to the public workforce system during the Great Recession did not result in any significant structural changes; neither did the move from the Workforce Investment Act to WIOA, leaving the system no better prepared today to respond to the need for virtual service delivery options, mental health and well-being support, and other transitional support such as digital access. There is some evidence that the immediate need for the American Job Centers to be “suddenly and strategically virtual” may inspire some new ways of doing business beyond the current crisis. Recent philanthropic and privately funded efforts are planning tests of technology-based rapid re-skilling efforts in connection with six “future-focused” workforce boards, with a goal of developing a playbook for future systemic change. These efforts, while laudable and much needed, are unlikely to happen quickly enough or on the scale that would be required to help today’s long-term unemployed workers.
Forthcoming recovery programs should include greatly expanded resources for experimenting with coaching as well as provide unbiased career guidance and better access to mental health resources and peer supports. While there is little evidence today that these strategies and resources will result in quicker attachment to the labor market of tomorrow, they are worth pursuing as researchers document their effectiveness. Realizing that the COVID labor market has left many job seekers without the prospect of returning to work or even being able to socialize or network in person, the Heldrich Center has been experimenting with a virtual New Jersey Career Network Job Seeker Community, which in addition to job search assistance has provided free wellness and peer support opportunities to help job seekers stay connected, motivated, and engaged while searching for work. These wellness activities may be especially important as more employers turn to online tests, games, and video interviewing tools that measure personality traits, which could leave long-term unemployed job seekers struggling with depression at a particular disadvantage.
While many job seekers face “opportunity gaps” due to systemic racism and discrimination based on age or gender rather than skills gaps, COVID may change the equation somewhat insofar as many jobs that have disappeared or been replaced with technology are unlikely to return, meaning long-term unemployed workers may in fact need retraining, preferably work-based training tied to specific in-demand jobs. However, hiring data from previous recessions has demonstrated that the proportion of job seekers who shift occupations or industries does not increase but rather declines during recessions, in part because high unemployment means employers have more qualified applicants from which to choose.
With over nine million jobs missing compared to the pre-COVID labor market, helping the long-term unemployed and others get back to work will take more than pre-pandemic job search assistance strategies and retraining, however. Many research and worker advocacy organizations are calling on the Biden Administration to create Franklin D. Roosevelt-type public works and national subsidized employment programs, which were underutilized in the aftermath of the Great Recession but showed promising results. These proposals incorporate an emphasis on creating high-quality career pathways, reducing racial and gender inequities, and paying family-supporting wages. In the absence of large-scale efforts and experimentation with new ways to engage job seekers in a tight and changing post-pandemic labor market, along with a true national jobs strategy, many long-term unemployed job seekers will face years of struggle even if the labor market returns to pre-pandemic levels.
Maria Heidkamp is Director of Program Development at the Heldrich Center for Workforce Development at Rutgers University.