26/11/2014: A Chart to Illustrate the Danger of Long-Term Unemployment

Quite a powerful reminder to us all as to the extent of the damage done by longer term unemployment. Here is the US data for the probability of regaining the job based on duration in unemployment:

Source: http://oregoneconomicanalysis.com/2014/11/10/graph-of-the-week-transition-probabilities/

Ignore the numbers on the right (for now):

• Probability of regaining a job for those with less than 5 weeks duration of unemployment is ca 35-36% currently in the US.
• Probability of regaining a job for those with unemployment duration of 15-26 weeks (under 6 months) is roughly 18%. That's half the rate of those at the shortest end of unemployment duration.
• Probability of regaining a job for those in unemployment longer than 53 weeks (roughly year +) is just a notch above 10%.

Another set of regularities worth noting is:

• For all durations, probability of regaining a job after an unemployment spell is showing a downward trend since the late 1990s.
• The steepest decline in probability of regaining the job (trend) is evident for mid-range duration.

This is scary. In effect this suggests that unemployment in the US is becoming more structural over time, despite the claims of the rising economic systems resilience and flexibility. 

Now, onto numbers on the right: these reflect how much of the gap in probability of regaining a job between the pre-crisis high and the crisis period low has been closed to-date.  Now, the author of the post is celebrating that the gap is closing. Fine by me. except do remember - the peaks referenced in the chart go back to mid-2007. Which means we are now 7 years and a quarter, or so, that the crisis has been raging and the best the US has to show is 71% gap closure for short term unemployed. This is what we today call 'the best recovery' amongst the advanced economies. Imagine how horrific it is in the 'less impressive recoveries' of other advanced economies.