1101 Connecticut Ave NW, Suite 810 Washington, DC 20036 http://www.nul.org A Long Road Back to Work The Realities of Unemployment since the Great Recession June 2011 Valerie Rawlston Wilson, PhD National Urban League Policy Institute Washington, DC
The Great Recession and Record Levels of Long-term Unemployment Aside from the obvious characteristics that have earned the recession that lasted from December 2007 through June 2009 the moniker of the Great Recession, another troubling trend emerged during this recent economic downturn. Not only did the Great Recession last longer and result in greater job loss than any of the three preceding economic contractions, but long-term unemployment -- defined as a period of unemployment lasting 27 weeks (6 months) or longer has reached unprecedented levels over the past several years. For example, according to the Bureau of Labor Statistics (BLS), when the recession began in December 2007, only 17.5 percent of unemployed workers (1.3 million people) had been out of work for 27 weeks or longer. By May 2010, the percentage of longterm unemployed had peaked at 46 percent, representing 6.8 million people. As of May 2011, nearly two years after the official end of the recession, there remain 6.2 million people who have been out of work for at least six months with a growing number registering spells of unemployment of 2 years or more i (Figure 1). Since the likelihood of becoming employed decreases the longer one is unemployed ii, extended periods of unemployment have serious ramifications for households and their economic future. These include the depletion of savings available for retirement or college tuition, as well as increasing rates of poverty and growing demand for public assistance resulting from diminished household income. Figure 1. While most discussions of the long-term unemployed tend to characterize these workers almost anonymously, this report paints a picture of the specific needs and circumstances facing today s longterm unemployed. The first section of the report summarizes the demographic of workers who make up this category. The second section addresses their access to and utilization of unemployment compensation benefits, prospects for re-employment, and how re-employment opportunities compare 2
to the jobs they held previously. The report concludes with policy recommendations for overcoming the challenges of long-term unemployment. Snapshot of the Long-term Unemployed Individual Demographics This snapshot of the long-term unemployed is based on a sample of individuals from the March 2011 Current Population Survey, the same data set used by BLS to calculate the monthly unemployment statistics iii. In March 2011, 45.5 percent of unemployed persons had been without a job for 27 weeks (6 months) or longer. On average, these individuals were slightly older than those who had been unemployed for less time -- the median age was 39 years old compared to 32 years for those who had been unemployed for less time. Sixty percent of long-term unemployed workers were male, roughly the same percentage of those unemployed for less than 27 weeks, but more than the overall percentage of men in the labor force (53%). Minorities and less-educated workers were also disproportionately represented among the long-term unemployed. African Americans were 12 percent of the labor force, 20 percent of the unemployed and 24 percent of the long-term unemployed. Similarly, Latinos made of 15 percent of the labor force, 20 percent of the unemployed and 28 percent of the long-term unemployed. Workers with a high school diploma or less were 39 percent of the labor force, but 55 percent of the long-term unemployed. While unemployment statistics are typically based on the job status of individuals, as mentioned in the introduction to this report, unemployment is an issue that impacts entire families. For example, 40 percent of the long-term unemployed were married, 28 percent had at least one child under the age of 18 and 36 percent of those with children under the age of 18 were single parents. Within racial and ethnic categories, African Americans are the only group where the long-term unemployed made up the majority of all unemployed persons (Table 1). This indicates that unemployed African-American workers typically face greater difficulty (measured by duration of unemployment) becoming re-employed. African Americans were also the only group for which the median age of longterm unemployed workers (34 years) was less than the median age of the workforce (39 years). In terms of families, 42 percent of white long term unemployed workers were married, compared to 25 percent of African Americans and 46 percent of Latinos. Twenty-nine percent of African-American longterm unemployed persons had children under the age of 18, compared to 39 percent of Latinos and 24 percent of whites. 3
Table 1. Characteristics of Long-term Unemployed Workers, by Race & Ethnicity All White Black Hispanic Long-term unemployed as a percent of all unemployed workers 46% 43% 52% 40% Median age: workforce / long-term UE (years) 41 / 39 43 / 43 39 / 34 36 / 37 Male 60% 59% 61% 59% Married 40% 42% 25% 46% With children under age 18 28% 24% 29% 39% Less than a high school diploma 17% 11% 22% 38% High school graduate 29% 37% 40% 35% Some college, no degree 19% 22% 19% 15% Associate degree 9% 10% 9% 4% Bachelor's degree or higher 27% 21% 10% 7% Industry and Occupation Figure 2 shows the distribution of the overall workforce compared against the distribution of unemployed persons by industry. Two industries construction and leisure and hospitality had significantly greater representation of unemployed persons relative to their share of the overall workforce. When we look at a breakdown of long term unemployed persons as a percentage of unemployed within each industry (Figure 3), five industries had percentages of long-term unemployed that exceeded the overall average of 45.5 percent manufacturing (52.8%), transportation and utilities (49.5%), information (53.4%), financial activities (54.8%), and public administration (50.1%). Among these industries, the average number of weeks unemployed was greatest in manufacturing (45 weeks) and information (42 weeks). While Figure 2 illustrates the relative concentration of unemployed workers across industries, Figure 3 shows sectors of the economy where unemployed workers are having the greatest difficulty (measured by duration of unemployment) finding new jobs. 4
Figure 2. Figure 3. 5
The data also reveal that those in occupations that typically require less education (and consequently also typically pay less) are overrepresented among the unemployed while workers in occupations requiring more education are underrepresented. For example, workers in service, construction, production and transportation occupations are 17.9 percent, 5.7 percent, and 6 percent of the overall workforce, respectively, but 21.3 percent, 13.6 percent, 8 percent, and 9 percent of the unemployed. On the other hand, those in management and professional occupations are 14.9 percent and 21.7 percent of the overall workforce, respectively, but just 8.4 percent and 10 percent of the unemployed (Figure 4). Among these occupations, the average number of weeks unemployed was greatest for workers in production (43 weeks), management (41 weeks), and professional (41 weeks) occupations. Interestingly, these statistics suggest that those who were the most likely to be unemployed were not necessarily experiencing the longest spells of unemployment. Figure 4. Unemployment Compensation and Re-employment Prospects of the Long-term Unemployed For this section of the analysis, I used a sample of adults (age 20 or older) from the 2008 panel of the Survey of Income and Program Participation (SIPP). SIPP is a longitudinal survey that collects information on source and amount of income, labor force information, program participation and eligibility, and general demographic characteristics. There are currently six waves of data available for the 2008 SIPP panel, covering the 26 month period from May 2008 to July 2010. In my sample, a person was counted as unemployed during the month if they were without a job for the entire month and on layoff or looking for work at least one week during the month. I categorized individuals as long-term 6
unemployed if they were unemployed for at least six months. The remainder of this section describes receipt of state unemployment compensation as well as pre- and post-unemployment job characteristics for these workers. State Unemployment Compensation Between 95 and 97 percent of long-term unemployed persons in the sample who left a job or business between May 2008 and April 2010 reported receiving state unemployment compensation at some point. Figure 5 shows the trend in monthly receipt of unemployment compensation over the 26 month period covered in the sample. The recipiency rate started at 59 percent in May 2008 and rose as high as 92 percent if February 2010 before falling back to 82 percent in July 2010. The median duration of time that benefits were received was 10 months, but 43 percent of long-term unemployed persons in the sample received benefits for a year or longer. The average amount received was $1,059.68, roughly 39 percent of pre-unemployment earnings. Because unemployment compensation is based on previous earnings, African American unemployment compensation recipients had the lowest average monthly benefit ($892.20) followed by Latinos ($1,004.49), and whites ($1,111.72). Similarly, average benefits increased with education. Those with less than a high school diploma received an average of $914.22 per month while the average amount for those with a bachelor s degree or higher was $1,249.08. Figure 5. Pre- and Post-Unemployment Job Characteristics Next, I focus the analysis on those who returned to work following a period of at least six consecutive months of unemployment. Since job characteristics are only available for jobs held within the survey period, I restricted the sample to those who were employed when they entered the survey sample in order to maximize the number of months available for observation. Over the course of the 24 months observed for this group, 38 percent of those who experienced an unemployment spell of at least six consecutive months subsequently returned to work. Thirty-three percent were employed at the end 7
of the 24 month observation period. Whites and African-Americans were equally likely to be employed at the end of the observation period (34% each), while 29 percent of Latinos were re-employed. Workers with a bachelor s degree or higher were also more likely than workers with less education to be re-employed at the end of the 24 months following a spell of at least six consecutive months of unemployment. The group of job returners who were employed at the end of the 24 months is the basis of the pre- and post- unemployment analysis that follows. Of job returners, 24 percent were working in the same industry as their pre-unemployment job and 19 percent were in the same occupation. Workers with a bachelor s degree or higher were the least likely to be re-employed in the same industry (17%) while high school graduates were least likely to be re-employed in the same occupation (14%). Sixty-six percent of workers who were re-employed following at least 6 months of unemployment experienced a decrease in earnings and 77 percent experienced a decrease in hours on the job. For example, average pre-unemployment earnings for job returners were $2,727 compared to average post-unemployment earnings of $2,011 this represents a real decline in earnings of 26 percent. Similarly, post-unemployment hours were on average 3.2 hours lower than pre-unemployment hours for the subset of job returners. Tables 2 and 3 present a full listing of pre- and post-unemployment job characteristics by race, ethnicity and education. Table 2. Pre- and Post-unemployment Jobs Characteristics, by Race & Ethnicity All White (non- Hispanic) Black Latin o Pre-unemployment hours 39.7 40.4 37.8 38.9 Post-unemployment hours 36.5 37.2 35.7 34.5 Change in hours 3.2 3.2 2.1 4.4 Pre-unemployment earnings $ 2,727 $ 3,067 $ 2,016 $ 1,921 Post-unemployment earnings $ 2,011 $ 2,103 $ 1,766 $ 1,680 Real % change in earnings (based on -0.2% change in CPI) -26.0% -31.2% -12.2% -12.3% Same occupation 19% 21% 16% 16% Same industry 24% 24% 17% 28% 8
Table 3. Pre- and Post-unemployment Jobs Characteristics, by Educational Attainment Vocational/ Technical/A ssociate's degree Bachelor's degree or higher Less than high school High school only Some college (no degree) Pre-unemployment hours 37.5 38.9 38.7 40 42.8 Post-unemployment hours 35.1 36.4 35.1 37.1 38.5 Change in hours 2.4 2.5 3.6 2.9 4.3 Pre-unemployment earnings $ 1,549 $ 1,881 $ 2,287 $ 2,489 $ 5,380 Post-unemployment earnings $ 1,317 $ 1,468 $ 1,729 $ 2,054 $ 3,416 Earnings % change -15.0% -22.0% -24.4% -17.5% -36.5% CPI % change (2008-2010) -0.2% -0.2% -0.2% -0.2% -0.2% Real % change in earnings (based on -0.2% change in CPI) -14.7% -21.7% -24.2% -17.2% -36.3% Same occupation 26% 14% 17% 22% 19% Same industry 32% 25% 18% 29% 17% Conclusion and Policy Recommendations The purpose of this report was to draw greater attention to the large ranks of unemployed workers who have been out of a job for six months or longer. As this report has shown, these workers represent a broad cross-section of society, although men, minorities and the less educated tend to be overrepresented with respect to their representation in the labor force. This report has also demonstrated the importance of unemployment compensation during periods of unemployment as well as examples of the costs paid by workers, in terms of earnings and hours, should they be fortunate enough to secure re-employment following an extended period of time spent out of work. Consequently, a number of recommendations arise from the facts revealed through this analysis. First, and most obvious, is the need for robust job creation. On this, I would first offer a note of caution about policies that have the potential to hamper economic growth and job creation. Though there is a need to seriously address the growing U.S. debt, prematurely timed federal budget cuts of the size proposed by House Republicans threaten to further dampen the rate of growth, thereby generating effects that will restrain job creation. Also, the record of tax cuts as contributors to job creation has not been especially strong. More than three times as many private sector jobs were created during the Clinton Administration (when there were tax increases) than were created during the Bush Administration (when there were tax cuts). On the other hand, the National Urban League is promoting a 12-point job creation plan that offers recommendations such as the development of a dynamic national public-private jobs initiative to 9
create jobs and train urban residents in five areas that have strong potential for future job growth or play a critical role in rebuilding the American economy and local communities technology and broadband; health care; manufacturing; urban transportation; water and community facilities; and clean energy. Given the role of small businesses as major job generators, the plan also advocates continued support for the expansion of small business lending and contracting opportunities for underrepresented groups. Second, investments in workforce development are critical to getting people back to work. As the data shows, workers with less education are less likely to return to work following a period of extended unemployment and seem to face fewer options when it comes to re-employment opportunities. Therefore, providing the long-term unemployed with opportunities for additional education and retraining (particularly for older workers who are unable to retire), will help to reduce the possibility of skills deterioration and expand the number of jobs and industries for which they are qualified. Finally, the need to extend eligibility for unemployment compensation benefits remains critical given the large number of workers who have been out of work for more than half a year. Proposals in some states to curtail unemployment benefits before the economy is capable of producing new jobs at the levels needed to significantly reduce unemployment, or to offer tax cuts to businesses at the expense of unemployed workers are short-sighted and ill-advised. On the contrary, the severity of the Great Recession has drawn attention to the need to strengthen the system over the long-term so that it remains sufficiently funded to withstand inevitable periods of high unemployment brought about by the economic cycle. National Urban League Policy Institute is the Washington, DC-based public policy research and advocacy arm for the National Urban League, dedicated to the National Urban League s 100 years old mission of economic empowerment and civil rights. To speak with our experts on this topic, please contact the National Urban League Policy Institute on 202-898-1604. i Source: Bureau of Labor Statistics, http://www.bls.gov/cps/duration.htm ii Randy Ilg, How Long Before the Unemployed Find Jobs or Quit Looking? Issues in Labor Statistics, (May 2011): p.2. iii At the time this report was prepared, the March 2011 sample was the most recent public use file available. 10