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[IWS] Brookings: ARE THE LONG-TERM UNEMPLOYED ON THE MARGINS OF THE LABOR MARKET? [20 March 2014]
IWS Documented News Service
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
Brookings Panel on Economic Activity
March 20–21, 2014
Are the Long-Term Unemployed on the Margins of the Labor Market?
Alan B. Krueger, Princeton University & NBER
Judd Cramer, Princeton University
David Cho, Princeton University
[full-text, 59 pages]
This paper explores the plausibility of a unified explanation for the recent shifts in the
price and real wage Phillips Curves and Beveridge Curve in the U.S.: namely, that the long-term
unemployed, whose share of overall unemployment rose to an unprecedented level after the
Great Recession, are on the margins of the labor force and therefore exert very little pressure on
the job market and economy. The hypothesis we seek to test is that the longer workers are
unemployed the less they become tied to the job market, either because, on the supply side, they
grow discouraged and search for a job less intensively (e.g., Krueger and Mueller, 2011) or
because, on the demand side, employers discriminate against the long-term unemployed, based
on the (rational or irrational) expectation that there is a productivity-related reason that accounts
for their long jobless spell (e.g., Kroft, Lange and Notowidigdo, 2013 and Ghayad, 2013). Either
of these explanations would imply that the long-term unemployed are on the margins of the labor
market, and have a different effect on the macroeconomy than the short-term unemployed.
Moreover, the demand-side and supply-side effects of long-term unemployment can be viewed
as complementary and reinforcing of each other as opposed to competing explanations, as
statistical discrimination against the long-term unemployed could lead to discouragement, and
skill erosion that accompanies long-term unemployment could induce employers to discriminate
against the long-term unemployed.
Motivated by the apparent stability of the Phillips and Beveridge Curves when the shortterm
unemployment rate is used to measure labor market slack, we assemble varied evidence to
assess the hypothesis that the long-term unemployed are on the margins of the labor market. To
preview our main findings, we tentatively conclude that the long-term unemployed exert
relatively little pressure on the economy, although the international evidence that we have been
able to assemble to this point is more mixed than the evidence for the U.S., and suggests that
long-term unemployment means different things in different countries and contexts.
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