Long-Term Unemployment and Recessions
Released: 2010-11-22T00:00:00

Summary:
The recession that began in the United States in December 2007 and officially ended in June 2009 was one of the deepest and the longest since the Great Depression. One feature that distinguishes the recent recession from its postwar predecessors is the historically high percentage of workers who have been unemployed for more than six months (the long-term unemployed). This report analyzes the trend in long-term unemployment over the postwar period and offers explanations for its unusually high incidence during the most recent postwar recession. It compares the individual, job, and household characteristics of the long-term unemployed during the latest recession (2007-2009) with the long-term unemployed at the end of the two previous recessions (1990-1991 and 2001).
Long-term unemployment varies across individuals based on demographic and job characteristics. In each of the last three recessions, older unemployed workers were more likely than younger workers to have been unemployed for over six months. While an equal share of unemployed men and women were unemployed for over half a year during the last two recessions, unemployed women were less likely than men to have been out of work for 27 or more weeks at the end of the 1990-1991 recession. Unlike the two previous recessions, in 2009, unemployed workers with less than a high school education were more likely than unemployed workers with more education to have been out of work for at least six months. Also, in 2009, workers laid off from the financial activities and information industries were the most likely to have been jobless longer than 26 weeks. Workers displaced from management, business, and financial occupations were most at risk of long-term unemployment during recent recessions.
Unemployment affects both the individuals who are without work and their families. Households of the long-term unemployed have lower earnings and income than other households (where households include married couples, single parents, and single individuals). In 2009, the most recent year for which data are available, the long-term unemployed were more likely than all unemployed workers to live in households with incomes below the official poverty line. They were more likely than other unemployed workers to receive benefits from the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp program) or be covered by Medicaid. In 2009, only 1.6% of the long-term unemployed received public assistance.
Slightly over half (55%) of the long-term unemployed had some type of health insurance coverage at some time during 2009, compared to a larger majority (83%) of employed workers. Although a small majority (58%) of the long-term unemployed were homeowners in 2009, they were less likely than employed workers (71%) to own their own homes.
As the economy recovers and employers increase hiring to meet the growing demand for goods and services, many currently unemployed workers will be able to find new jobs. However, finding work may be more difficult for the long-term unemployed if, for example, employers believe that their skills have deteriorated during their lengthy time away from the workplace. The long-term unemployed displaced from industries in which restructuring has occurred may also have a hard time finding new jobs in other industries, especially if the jobs require skills different from those they possess. Policies to encourage employers to hire the long-term unemployed include wage and training subsidies. Offering wage insurance and reemployment bonuses to unemployed workers may encourage them to accept jobs sooner than they otherwise might have.

paragraphs: The recession that began in the United States in December 2007 and officially ended in June 2009 was one of the deepest and the longest since the Great Depression. In response, Congress enacted legislation to stimulate aggregate demand and provide assistance to unemployed workers and their families. The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) temporarily raised spending by increasing funding for a number of programs, creating new programs, and providing tax benefits for individuals, families and businesses. Congress also authorized a federally funded temporary program ( P.L. 110-252 as amended) to provide additional weeks of unemployment benefits to those who exhausted their eligibility under the federal-state Unemployment Compensation (UC) program. Although some in the public policy community are concerned that extending benefits may discourage recipients from looking for work, Congress has extended the program on multiple occasions. 
It is not unusual for improvement in the labor market, as measured by a declining unemployment rate, to begin some months after the official ending date of a recession. It is also not unusual for the proportion of the labor force unemployed for more than six months (the long-term unemployment rate) to continue rising and peak after a recession ends. What is unusual, however, is that the incidence of long-term unemployment currently is higher than at any time since World War II. 
The purpose of this report is to assist policymakers who may consider legislation to stimulate job growth, provide additional benefits to unemployed workers, or assist families whose incomes have fallen because of a job loss or reduction in hours worked. The report first compares the prevalence of long-term unemployment across business cycles during the postwar period and offers explanations for its unusually high incidence during the most recent recession. It next analyzes the likelihood of unemployed workers with different demographic, job, and household characteristics experiencing a very long period without paychecks. The report closes with a discussion of long-term unemployment's implications for public policy. The report does not consider the macroeconomic effects of government spending or tax cuts to expand job growth or provide benefits to unemployed workers and families who have experienced a loss of income. 
subsections: section_title: The Trend in Long-Term Unemployment
paragraphs: The percentage of the labor force without jobs for longer than six months (the long-term unemployment rate)—like the unemployment rate—generally rises as economic activity falls. This countercyclical pattern was evident during the deep recessions of the 1970s and 1980s, when the long-term unemployment rate rose 0.4 percentage points to 0.8% at the end of the 1973-1975 recession and 1.1 percentage points to 2.1% after the 1981-1982 recession. The same pattern was evident during milder recessions, when the long-term unemployment rate rose 0.3 percentage points to 0.8% at the trough of the 1990-1991 and 2001 recessions. As the latest recession unfolded, the long-term unemployment rate increased from 0.9% in December 2007 to 2.9% in June 2009 (the official end of the recession). After the end of the recession, the long-term unemployment rate continued to rise, peaking at 4.4% in May and June of 2010. As of October 2010, the long-term unemployment rate was 4.0%. (See Figure 1 .) 
Another way to look at the trend in long-term unemployment is to examine the number of long-term unemployed as a share of all unemployed. The long-term unemployed as a share of all unemployed was 29.6% in June 2007, up from 17.3% in December 2007. This measure also continued to rise after the end of the recession, rising to 46.0% in May 2010. In October 2010, 41.8% of unemployed workers had been looking for work for more than 26 weeks. The proportion of unemployed persons out-of-work over 26 weeks has been considerably above the rate recorded during prior downturns and nascent recoveries. (See Figure 2 .)
section_title: Why So High During the Latest Recession and Nascent Recovery?
paragraphs: The historically high incidence of long-term unemployment observed starting in mid-2009 coincides with Congress' longer than usual temporary extension of UC benefits beyond the duration afforded by the permanently authorized federal-state UC system and Extended Benefit programs. The temporary UC benefit programs enacted to mitigate the effects of seven prior recessions provided a maximum of 13 to 33 weeks of benefits. After the seven recessions ended, the long-term unemployment rate and share of long-term unemployment ranged from 0.8% to 2.6% and from 13.6% to 25.7%, respectively. The 111 th Congress provided a maximum of 33 weeks of benefits from about November 2008 through October 2009. Both the long-term unemployment rate (3.7%) and the share of long-term unemployment (36.0%) in October 2009 were well outside these ranges. The subsequent extension of benefits to a maximum of 53 weeks starting in November 2009 has been accompanied by a still higher long-term unemployment rate and share of long-term unemployment in early 2010. (See Figure 1 and Figure 2 .)
The availability of a maximum of 53 weeks of benefits through the Emergency Unemployment Compensation (EUC) program probably prompted individuals to continue searching for jobs instead of leaving the labor force after exhausting their regular UC benefits. But, the currently low hiring rate of employers makes workers refraining from accepting jobs in order to continue receiving EUC benefits a less plausible explanation for the historically high incidence of long-term unemployment. An analysis by Valletta and Kuang that estimated the difference in duration of unemployment among persons likely to be eligible for UC benefits (i.e., job losers) and those likely to be ineligible (i.e., unemployed job leavers and labor force entrants) concluded that the recent extensions of unemployment benefits contributed little to the historically high level of long-term unemployment. "It is not surprising that the disincentive effects of UI would loom small in the midst of the most severe labor market downturn since the Great Depression."
Another study concluded that the 53 weeks of temporary unemployment benefits could account for as much as 0.7 to 1.8 percentage points of the increase in the unemployment rate during the recent recession. The authors add, however, that the effect of extended benefits on the unemployment rate is probably at the lower end of these estimates.
According to BLS data from the Job Openings and Labor Turnover Survey (JOLTS), from the beginning to the end of the recent recession, the hiring rate fell from 3.6% in December 2007 to 3.0% in June 2009. In September 2010, the rate was 3.2% (the latest month for which data were available for this report). In contrast, the hiring rate during the March-November 2001 recession and ensuing "jobless recovery" exceeded the hiring rate reported during and after the 2007-2009 recession. The hiring rate fell from 4.4% in March 2001 to 3.9% in November 2001, after which it reached a low of 3.5% in March 2003 before gradually trending upward.
The industry restructuring that arguably characterized the 2001 recession may have characterized the latest recession as well, and made it more difficult for workers to find new jobs as quickly as they did after earlier recessions. Workers displaced by industries permanently reducing their demand for labor will take longer to become reemployed than workers waiting to be recalled by their employers from temporary layoffs. The period of job search could be especially prolonged when the skills needed for employment in growing industries differ from the skills of workers laid off by restructuring industries and when displaced workers must often lower their wage expectations to obtain new jobs.
The so-called jobless recovery from the 2001 recession prompted several economists to analyze whether increased industry restructuring had led comparatively large numbers of unemployed workers to move from downsizing industries to industries increasing their demand for labor. No consensus was reached, however. Groshen and Potter estimated that, according to their measure, many more industries were undergoing restructuring during the 2001 recession and subsequent recovery than during prior business cycles. In contrast, Aaronson, Rissman, and Sullivan estimated that, based on a different measure of labor reallocation across industries, the degree of restructuring during and after the 2001 recession was less than that during earlier periods. Although this second group of researchers did not find evidence that the rate of permanent job loss was atypically elevated following the 2001 recession, they noted that "the unusually high duration of unemployment [in 2002 and 2003] is consistent with [an] increased mismatch" between the skills of displaced workers and the skills being demanded by employers in growing industries. Similarly, Figura and Wascher estimated that workers displaced from industries that were downsizing experienced almost a doubling in the amount of time spent not working (from 19 to 35 weeks) between the 1997-1999 and 2001-2003 periods, while workers displaced from other industries experienced a much smaller increase (from 19 to 28 weeks). The two researchers concluded that while it appears that downsizing industries (e.g., manufacturing, information and data processing services, broadcasting and telecommunications, publishing) were quick to layoff workers in the early 2000s, "it took a considerable amount of time for these resources to be re-employed elsewhere."
Rissman's more recent work, covering the period from the first quarter of 1984 to the second quarter of 2009, suggests that the impact of structural realignment on unemployed workers varies by industry. While restructuring in the finance, insurance, and real estate industries resulted in worker displacement, employees from these industries may be "better able to find alternative employment in other sectors of the economy because the skills they possess are more readily transferable to employment in other industries." Alternatively, workers who lose jobs in the construction, manufacturing, and transportation and utilities industries "may be less readily absorbed into other sectors," thereby lengthening the time spent unemployed.
Distinguishing cyclical from structural unemployment is more than an academic exercise. If job losses are the result of a temporary (cyclical) reduction in the demand for goods and services, the use of fiscal and monetary policies to stimulate economic activity may be sufficient to reduce unemployment. However, if job losses are also the result of changes in technology, trade, or consumer tastes that cause permanent shifts in the demand for labor across sectors, employment policies may also be appropriate responses. This matter will be revisited in " Implications for Public Policy " at the conclusion of this report.
section_title: Who is Likely to Experience Long-Term Unemployment?
paragraphs: Knowledge of which jobless workers are more likely to suffer long-term unemployment may help to identify policies that address their plight. This report compares the long-term unemployed at the end of the three most recent recessions (2007-2009, 2001, and 1990-1991). The report uses data from the monthly Current Population Survey (CPS), which is a household survey conducted by the U.S. Census Bureau for BLS. The report also uses data from the Annual Social and Economic (ASEC) Supplement to the CPS. The supplement collects information on the sources and amounts of household and family income and benefits. (The ASEC Supplement was formerly called the March Supplement.) 
Because of changes in the CPS over time, not all variables analyzed in this report can be compared across the last three recessions. For example, beginning in January 2003, the CPS adopted new industry and occupation classification systems that changed the way in which some industries and occupations are categorized. In January 2003, the CPS also changed the way survey respondents can respond to the question on race. In the past, survey respondents had to select one race (e.g., white, black). Respondents can now choose more than one race, which makes meaningful comparisons over time difficult. Finally, because the CPS is a household survey, sample size (e.g., number of workers with an advanced or professional degree) limits the detail of the analysis presented below. 
subsections: section_title: Individual Characteristics
subsections: section_title: Age
paragraphs: Age appears to be positively related to long-term unemployment. As shown in Figure 3 , older unemployed workers are more likely to have been without jobs for longer than half a year in 2009, 2001, and 1991. In 2009, for example, 30.4% of unemployed 25-34 year olds and 33.1% of unemployed 35-44 year olds had been out of work for at least 27 weeks, compared to 37.5% of unemployed 45-54 year olds, 39.2% of unemployed 55-64 year olds, and 40.0% of unemployed workers age 65 and older.
Age (a proxy for seniority) tends to protect older workers from being laid off and thereby contributes to the comparatively lower unemployment rate of older workers. But, seniority affords older workers little protection if companies go out of business or close plants. Once they are let go, the higher earnings that often accompany more job tenure would tend to lead older workers to remain unemployed longer than younger workers. Joblessness could be especially prolonged among high-wage, high-tenure persons displaced from industries undergoing structural change in addition to temporarily reduced product demand (e.g., workers in the motor vehicle manufacturing industry).
section_title: Gender
paragraphs: Unemployment among men has been greater than among women during and shortly after recessions since the 1980 recession. The latest recession is no exception, with men's higher unemployment rate related in part to their dominance of employment in more cyclically sensitive industries (e.g., manufacturing and construction).
A notable change across recent recessions involves the likelihood of long-term unemployment by gender. Figure 4 shows that in 2009 and 2001, unemployed women were as likely as unemployed men to be out-of-work for over half a year. In 1991, in contrast, unemployed women were significantly less likely than men to experience long-term joblessness. The gap between their probability of long-term unemployment narrowed from 4.8 percentage points in favor of men in 1991 to a statistically insignificant 0.5 percentage points in 2001 and 2009. Women's increased attachment to the labor force may partly explain their labor market behavior becoming more like that of men: rather than immediately withdrawing from the workforce upon being laid off, women have become more likely to seek new jobs and to persist in their job search for a very long time.
section_title: Educational Attainment
paragraphs: Another notable change concerns the probability of long-term unemployment among the unemployed who ended their formal schooling upon attainment of a high school diploma. They were more likely to be without jobs for longer than 26 weeks in 2009, while their risk of long-term unemployment did not differ substantially from that of other educational groups in 2001 and 1991. (See Figure 5 .) In part, this change may have occurred because major employers of high school graduates age 25 and older were harder hit during this recession than during the two prior recessions. In 2009, the construction (10.8%) and manufacturing (13.6%) industries employed almost one-fourth of high school graduates in the labor force. Construction employment plummeted by 21.4% between December 2007 and August 2009, compared to only 1.1% during the 2001 recession and 7.5% during the 1990-1991 recession. Similarly, manufacturing employment dropped by 14.9% during the latest recession compared to only 6.6% during the 2001 recession and 3.2% during the 1990-1991 recession.
section_title: Industry
paragraphs: Seemingly unique to this recession is the significantly greater risk of long-term unemployment among workers laid off from the information (e.g., telecommunications, publishing) and financial activities (i.e., finance, insurance, and real estate) industries. Almost two out of five workers laid off from the two industries did not receive a paycheck for over six months in 2009. In fact, long-term unemployment accounted for a larger percentage of total unemployment in the two industries than it did in the cyclically sensitive manufacturing industry (at a little more than one-third). Nonetheless, displaced manufacturing workers consistently were among the industries most likely to experience long-term unemployment. (See Figure 6 .)
section_title: Occupation
paragraphs: Both in 2009 and 2001, workers displaced from management, business, and financial occupations had a greater probability of being unemployed for more than six months compared to workers laid off from other occupations. The relatively high wages of individuals in management, business, and financial occupations probably contributed to their lengthy unemployment while searching for jobs offering comparable compensation. So, too, would their industry-specific (not-easily transferable) skills if they needed to change industries to obtain new jobs. In contrast, only in 2009 were workers laid off from office and administrative support jobs significantly more likely to experience long-term unemployment. The overrepresentation of office and administrative support workers in two industries (information and financial activities) hit uncharacteristically hard during the 2007-2009 recession might have contributed to the occupational group's elevated risk of long-term unemployment. (See Figure 7 .)
section_title: Household Characteristics
paragraphs: Unemployment affects both the individuals who are without work and their families. Workers who become unemployed face a loss of earnings and, in some cases, fringe benefits, such as employer contributions toward health insurance or to a retirement plan. As a result, their families may experience a loss of household income and health insurance coverage. Unemployed homeowners may find it difficult to keep up with their mortgage payments and could face foreclosure. 
Unemployed workers may have income from sources other than work. For example, they may receive rent, interest, or dividends. They may also be eligible for both cash and in-kind benefits. These benefits include unemployment compensation, food assistance, or cash public assistance. Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA, P.L. 99-272 ), unemployed workers may be able to purchase health insurance through their former employer. Workers could be eligible for a temporary subsidy to buy health insurance under COBRA. Some workers may be eligible for a health coverage income tax credit (HCTC). Unemployed workers may also be covered by the insurance policy of another family member or they may be eligible for Medicaid.
This section compares workers who have been unemployed for 27 weeks or more with all unemployed workers and all employed workers. The analysis compares "all households" with married couple households. "All households" include married couples, single-parent households, and single individuals. 
The analysis in this section is based on data from the Annual Social and Economic (ASEC) Supplement to the monthly CPS. The supplement collects information on household earnings and income for the previous year. The supplement also asks individuals whether they had health insurance at any time during the previous year. The supplement is conducted at the beginning of each year, mainly in March. The most recent data available are from the 2010 ASEC, which collected information for 2009.
The data from the CPS supplement have some limitations in analyzing the household characteristics of workers unemployed for more than six months. Since the supplement collects information for the previous year (when a long-term unemployed worker may have been employed), it may not fully capture the household characteristics of workers at the time the survey is conducted.
In household surveys like the CPS, households tend to underreport their income. Households report their wages and salaries more accurately than their income from interest, dividends, public assistance, or other sources. Thus, the estimates in this section may understate the amount of household income and the percentage of individuals or households receiving certain types of benefits. 
subsections: section_title: Earnings and Income
paragraphs:  Figure 8 shows the average real earnings of households in 2009, 2001, and 1991. Average earnings are shown for employed workers, unemployed workers, and long-term unemployed workers. Unemployed workers include both the long-term unemployed and other unemployed persons. Average earnings are in constant (i.e., inflation-adjusted) 2009 dollars.
In 2009, the average household earnings of workers unemployed for more than six months were lower than the average household earnings of employed workers ($38,580 versus $71,730). In addition, the average household earnings of the long-tern unemployed in 2009 were lower than the average household earnings of the long-term unemployed in 2001 ($38,580 versus $43,330). In 2009, the long-term unemployed had average household earnings that were about 54% of the average household earnings of employed workers. This was the same percentage as in 1991, but lower than the percentage in 2001 (59%). 
Households may have income from sources other than work. For example, they may receive rent, interest, or dividends, as well as cash income in the form of UC benefits or public assistance. In 2009, the average household income of the long-term unemployed was an estimated $42,400. Again, this was approximately 54% of the average household income of employed workers ($78,240). In 2009, the average household income of the long-term unemployed was lower relative to the household income of employed workers than in either 2001 (59%) or 1991 (58%). (See Figure 9 .)
On average, married couples have higher earnings than all households considered together. In 2009, as shown in Figure 10 , married couples where at least one spouse was unemployed for over six months had average earnings of $51,960 (compared to $38,580 for all household types). The average earnings of married couples with at least one long-term unemployed spouse were approximately 53% of the average earnings of married couples in which neither spouse was unemployed ($51,960 compared to $97,990). This percentage was slightly lower than in 2001 (64%), but approximately the same as in 1991 (54%). 
section_title: Unemployment Benefits
paragraphs: In 2009, almost half (48.6%) of all long-term unemployed workers received unemployment benefits (e.g., UC, EB and EUC benefits, Trade Adjustment Assistance). As shown in Table 1 , this was higher than in 2001 (30.6%), but not statistically different from the percentage for 1991 (48.5%).
section_title: Poverty
paragraphs: Poverty is a common measure of economic well-being. In 2009, an estimated 27.3% of the long-term unemployed lived in households that had incomes below the official poverty level. This percentage was not statistically different from either 2001 (27.1%) or 1991 (27.4%). (See Table 1 .)
section_title: Public Assistance and Supplemental Nutrition Assistance
paragraphs: Households that receive public assistance or benefits under the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp program) have low incomes. In 2009, about one in five (21.7%) long-term unemployed workers lived in a household where someone received SNAP benefits. This was higher than in 2001 (15.7%) but statistically the same as in 1991 (19.3%).
In 2009, only 1.6% of the long-term unemployed received income from public assistance. This percentage was down from an estimated 4.3% in 2001 and 7.6% in 1991. Public assistance caseloads for 1991 and 2001 are not comparable, however. The number of families receiving cash welfare assistance declined after Congress enacted the Temporary Aid to Needy Families (TANF) program in 1996. In addition, the CPS may underestimate the percentage of unemployed who receive public assistance. A comparison of estimates from the CPS with administrative data from the TANF program suggests that the CPS does not capture a significant portion of persons who receive public assistance and that this underreporting has worsened over time. (See Table 1 .)
section_title: Health Insurance Coverage
paragraphs: Unemployed workers may lose employer contributions for health insurance. They may, however, be eligible for coverage under Medicaid, be covered by the insurance policy of a family member, or buy insurance through their former employer or directly from an insurer. 
The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) included a subsidy for up to 15 months for unemployed workers who buy health insurance under COBRA. The subsidy is available to workers who lost their jobs between September 1, 2008, and March 31, 2010. The subsidy consists of an employer tax credit equal to 65% of the unemployed worker's health insurance premium.
Some unemployed workers may be eligible for a health coverage income tax credit (HCTC), which may bolster the share with benefits. The credit against health insurance premiums is available to workers who are receiving income or wage subsidies under the TAA program or are between the ages of 55 and 64 and are receiving payments from the Pension Benefit Guaranty Corporation (PBGC).
In 2009, as shown in Table 1 , approximately 14.8% of long-term unemployed workers were covered by Medicaid. Statistically, this percentage was not different from 2001 (12.8%), but higher than in 1991 (11.1%).
 Figure 12 shows that an estimated 55.2% of the long-term unemployed had health insurance coverage at some time during 2009. This is significantly less than the 82.5% of employed workers who had insurance coverage. It is also less than the percentage of long-term unemployed who had health insurance coverage in 2001 (60.3%) but statistically the same as in 1991 (57.3%).
section_title: Number of Earners in the Household
paragraphs: Many households have more than one member who is employed. If a worker becomes unemployed, other household members may continue to work, work more hours, or enter the workforce. In 2009, however, no one was working in 31.2% of the households of the long-term unemployed . As shown in Table 2 , the percentage of households with no earners in 2009 was higher than both 2001 (17.2%) and 1991 (22.5%). At the same time, the percentage of households with two earners fell from 25.9% in 2001 to 18.8% in 2009.
If a single parent or single individual becomes unemployed, there may not be anyone else in the household with earnings. But among married couples, if one spouse becomes unemployed the other spouse (or someone else in the household) may be working or may go to work. Among married couples in 2009, no one was working in 12.4% of the households of the long-term unemployed. This percentage was higher than in 2001 (7.4%), but was not statistically different from 1991 (12.2%). The percentage of married couple households with two earners fell from 49.9% in 2001 to 37.3% in 2009.
section_title: Homeownership
paragraphs: Employed workers are more likely than unemployed workers to own their own home. Nevertheless, a majority of unemployed workers, regardless of unemployment duration, are homeowners. Figure 13 shows that in 2009, 71.0% of employed workers owned their own home, compared to 56.0% of unemployed workers and 57.7% of the long-term unemployed. 
From 1991 to 2009, homeownership fell among workers who were unemployed for more than six months (from 60.8% to 57.7%). However, homeownership rose among employed workers (from 68.7% to 71.0%) and for all unemployed workers (from 53.9% to 56.0%). From 2001 to 2009, there was a slight decline in the percentage of employed workers who owned their homes (from 71.7% to 71.0%), but no significant changes in the percentages of the unemployed or long-term unemployed who owned their own homes. 
Job loss and a reduction in household income may cause some borrowers to become delinquent on their mortgage loans. A borrower who has missed three or more mortgage payments is generally considered to be in default. After a default, lenders may take a number of steps—including rescheduling loan payments or restructuring a loan—before proceeding to foreclosure (i.e., a lender may recover losses on a loan by repossessing the home). At the end of 2009, the percentage of mortgages that were 90 or more days past due accounted for over half of all delinquent loans, double the percentage from a year earlier.
section_title: Implications for Public Policy
paragraphs: Recessions are generally characterized by a drop in consumer demand and a decline in investment. Consumers buy fewer cars and homes, cut back on travel and entertainment, and spend less on clothing and dining out. Businesses invest less in new buildings and equipment. A result of a decline in aggregate demand is an increase in unemployment. Fiscal and monetary policy are the macroeconomic responses to a recession. Fiscal policy consists of changes in government spending and taxes. Monetary policy consists of actions by the Federal Reserve to affect the supply of money and interest rates. 
The strength of an economic rebound largely determines the pace of net job growth (i.e., the extent to which additions exceed separations from employer payrolls) and reduction in unemployment, including long-term unemployment. In the early stages of an economic recovery, increased demand for goods and services first slows the flow of workers into unemployment. While short-term unemployment consequently falls, the average duration of unemployment increases for some time after the end of a recession. Once employers become confident that an economic upturn is firmly in place, they go beyond increasing the work hours of current employees to hiring more workers.
But, a return to economic growth may not be sufficient to fully overcome the reemployment problems of the long-term unemployed. Employers may rank job applicants by their duration of unemployment and hire from the front of the queue (i.e., the short-term unemployed) because they consider lengthy unemployment to be a signal of poor worker quality (i.e., low productivity). In effect, long-term unemployment can stigmatize workers. Firms may also be reluctant to hire the long-term unemployed because they believe the group's skills have atrophied during their lengthy time away from the workplace. In addition, businesses may discriminate against older workers, who are more likely than younger workers to be among the long-term unemployed.
A variety of employment policies might be considered to ameliorate these labor market difficulties. Offering wage subsidies to firms that hire the long-term unemployed compensates employers for the group's actual or perceived skill shortcomings. So, too, does providing a training subsidy to companies that hire workers with arguably deteriorated skills due to their lengthy bout of unemployment. Passage of a temporary public jobs program early in a recession may prevent the skill erosion potentially induced by long-term unemployment. The latter was one of the rationales for enacting job creation programs during the Great Depression. And, employers might be discouraged from failing to hire older displaced workers through stepped up enforcement of workplace discrimination laws.
A return to economic growth also may be insufficient to fully overcome the reemployment problems of the long-term unemployed given the history of structural change coinciding with cyclical downturns. Before the back-to-back recessions of the early 1980s, for example, workers in the steel industry were about half as likely as the average worker to experience long-term unemployment. With the recessions of the early 80s, long-term unemployment among steelworkers became "among the worst of any worker group.… Considerable evidence indicates that the Nation's steel industry [was] suffering from some basic problems quite unrelated to cyclical declines in demand."
One approach that has been suggested to reemploy workers displaced from jobs in restructuring industries is wage insurance. Such a program may encourage high-tenure, high-wage workers to accept lower paying jobs in growing industries by compensating them for the difference in wages from their new and old jobs. Under the Alternative Trade Adjustment Assistance (ATAA) program, older workers who become reemployed within 26 weeks of being laid off can receive one-half of the difference in earnings from their former and new jobs up to a maximum of $10,000 over two years.
Another potential policy response is to provide reemployment bonuses to unemployed workers who accept new jobs within a given time frame, thereby shortening their spell of unemployment. Experiments were conducted in a few states in the 1980s to evaluate the efficacy of variously designed reemployment bonus programs. The evaluations and subsequent reanalyses generally concluded that offering bonuses to UC recipients shortened their length of benefit receipt, especially when UC recipients also were offered job search assistance and when the bonus programs were targeted at those UC recipients most likely to exhaust their benefits.
If restructuring industries are concentrated geographically, economic development and relocation assistance for the unemployed may be appropriate measures as well. But, these strategies do not necessarily focus on assisting the long-term unemployed. States typically take the lead in efforts to attract growing industries to reemploy their laid off residents. To assist the workers and communities adversely affected by the auto industry's restructuring, however, President Obama created the position of Director of Recovery for Auto Communities and Workers within the Department of Labor to leverage available federal resources (e.g., ARRA funds). In contrast, providing assistance to unemployed workers to encourage them to take jobs in other areas is not often mentioned today. Relocation assistance currently is one of the benefits offered to TAA-eligible workers, those receiving Department of Labor national emergency grants, and adult and dislocated workers served by the Workforce Investment Act.
Lastly, workers laid off due to structural changes in the economy may not possess the skills needed to find jobs in expanding industries. While these individuals can undertake education and training to acquire the skills that are in demand, these activities may not result in reemploying the long-term unemployed as quickly as some of the approaches discussed above.
subsections: section_title: Appendix. Data and Methodology
paragraphs: The analysis in this report is based on data from the Current Population Survey (CPS), which is a household survey conducted by the U.S. Census Bureau for the Bureau of Labor Statistics (BLS). The monthly CPS is the source of the national unemployment rate and other labor market information. The survey is representative of the civilian, noninstitutional population. The sample does not include persons living in institutions (such as mental hospitals, nursing homes, or correctional facilities). The monthly survey does not include individuals who are on active duty in the military. Approximately 50,000 households are interviewed each month.
Each year, the CPS conducts the Annual Social and Economic (ASEC) Supplement to the monthly CPS. The supplement collects information on the types and sources of family income, health insurance coverage, and other household information. The supplement collects information for the previous year. The sample for the ASEC Supplement is representative of the civilian, noninstitutional population of the United States. The sample for the supplement includes members of the Armed Forces living in civilian housing units on a military base or in a household not on a military base. For the 2010 supplement, 77,000 households were interviewed.
In the supplement, earnings include wage and salary income and income from self-employment. Wages and salaries include earnings from self-employment, tips, commissions, and cash bonuses. Total income includes earnings, interest and dividends, social security and pension benefits, public assistance, unemployment and worker's compensation, alimony and child support, and other types of money income. Money income does not include in-kind transfers for food, housing, healthcare, or energy assistance. Money income does not include capital gains and is income before taxes or other deductions. In this report, total family earnings and income consist of the sum of earnings and income of all persons in a household or married couple family.
In the CPS, a family is defined as a group of two or more persons who are living together and who are related by birth, marriage, or adoption. In the CPS, a family may include a related subfamily, such as a married son or daughter or an unmarried son or daughter with a child. The CPS defines single individuals as either "nonfamily householders" or "secondary individuals." Following the CPS definition of a family, in this report married couples and single parent families may include one or more related subfamilies. A primary family and an unrelated subfamily living in the same household are treated as two separate families. Unmarried parents are treated as a single parent and a single individual. Unmarried couples without children are treated as two single individuals.
The analysis in this report includes persons in the labor force, either employed or unemployed, who are ages 16 or over. The analysis of household and family earnings and income includes households and families with positive earnings or income.
Topcoding
To protect the confidentiality of survey participants, the CPS assigns an income amount to higher income persons. Changes in these amounts, or topcodes, over time can affect the observed trend in real income and earnings. For example, in 1991, individual earnings were topcoded at $99,999; in 2001, earnings were topcoded at $150,000; and in 2009, earnings were topcoded at $200,000. Since 1996, for persons with earnings above the topcoded amounts, the amount of earnings reported in the public CPS files is the average earnings of workers with similar characteristics. Average earnings are calculated for persons based on gender, race, ethnicity, and whether or not a person works full-time, year-round. Since 1999, for persons with incomes above the topcoded amounts, the public CPS files report the average income of persons with topcoded income. For consistency, for the years 2001 and 2009, this report uses average topcoded earnings and income as reported in the CPS and, for 1991, average earnings and income from a report published by the National Bureau of Economic Research (NBER).
Confidence Intervals
Estimates based on survey responses from a sample of households have two kinds of error: nonsampling and sampling. Examples of nonsampling error include information that is misreported and errors made in processing collected information. Sampling error occurs because a sample, and not the entire population, of households is surveyed. The difference between an estimate based on a sample of households and the actual population value is known as sampling error. When using sample data, researchers typically construct confidence intervals around population estimates. Confidence intervals provide information about the accuracy of estimated values. With a 90% confidence interval and repeated samples from a population, 90% of intervals will include the average estimate of the population characteristic.