Long-term unemployment tumbles to its pre-pandemic level, helping to ‘mitigate the risks of labor-market scarring’

Finance

Long-term unemployment tumbled below its pre-pandemic level in July, the U.S. Department of Labor said Friday, as an unexpectedly strong showing of job gains buoyed workers broadly across the economy.

Long-term joblessness is a period lasting at least six months. Those without work that long are exposed to more financial risks, since they’ve generally exhausted eligibility for unemployment benefits and it becomes harder to find another job during lengthy unemployment spells.

The number of long-term unemployed fell by 269,000 in July, to 1.07 million people — less than the roughly 1.1 million people in February 2020, according to the Labor Department’s monthly jobs report.

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Further, 18.9% of all unemployed Americans in July were considered long-term unemployed — a significant reduction from the 22.6% share in June and less than the 19.1% pre-pandemic share in February 2020, according to the agency.

By comparison, a year ago, in July 2021, more than 39% of all out-of-work Americans had been jobless for at least six months.

“Long-term unemployment was a serious concern earlier in the recession,” said Daniel Zhao, lead economist at career site Glassdoor. “We had this experience during the Great Recession where it was very difficult to get workers back into the labor force and back to jobs.”

Long-term joblessness can lead to ‘scarring’

The rapid recovery of long-term joblessness from its pandemic-era highs — when 43% of all unemployed were out of work long-term — serves as a reminder that a quick recovery is possible, which can “help mitigate the risks of labor-market scarring,” Zhao added.

That “scarring” effect refers to the greater difficulty of returning to work after being out of a job for a long time. Workers can lose skills and their job networks may fray, for example, the longer they’re out of work. Research has also shown that, even if workers find new employment, they face negative financial side effects from that long-term joblessness in the form of lower lifetime earnings.

The overall unemployment rate in July fell to its pre-pandemic level of 3.5% — which had been the lowest unemployment rate since 1969.

U.S. employers added 528,000 jobs last month, fully recovering the roughly 22 million jobs lost during March and April of 2020.  

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