Mixed Messages From Improving Unemployment Rate

October 04, 2012

Since reaching 10% in October 2009, unemployment has been on a slow downward trajectory and fluctuated throughout 2012 within the range of 8.1% to 8.3%. At first glance, any reduction in this headline number appears to be good news. However, upon closer examination, the recent decline in unemployment rate is attributable to both workers dropping out of the labor force (and therefore not being counted as part of the labor force) as well as new job creation. Of the 12.5 million people currently counted as unemployed, 40% of those have been without a job for 27 weeks or more.

This week’s Chart of the Week examines the historical median duration of U.S. unemployment. During August, the median duration was 18 weeks, having fallen from an all time high of 25 weeks in June 2010. The above chart illustrates headline unemployment in recent years; note the drop from its high in June 2010. While the median duration has dropped, the overall impact of longer-term unemployment on labor market health and the economy is still significant. In this environment, the prospects for a rapid economic recovery are much lower than improvements in headline unemployment would suggest. Those unemployed for longer durations of time run the risk of increasing structural unemployment as well as reducing potential output within the economy.