Fed Says Low Labor Demand Big Cause of Long-Term Unemployment

Low demand for U.S. labor is the “key explanation” for the unusually high long-term unemployment of many Americans, according to researchers at the Federal Reserve Bank of San Francisco.

An extension of unemployment benefits, a drop in the portion of young workers in the work force and changes of measurement in a U.S. Labor Department survey also account for an increase in the duration of joblessness, Rob Valletta and Katherine Kuang at the San Francisco Fed said in a paper released today.

While the recovery has helped reduce the unemployment rate to 8.5 percent from a peak of 10 percent in October 2009, the average job-seeker was without work for 40.8 weeks last month, compared with 34.9 weeks a year earlier, seasonally adjusted data from the Labor Department show. People who go without work for longer periods face poorer prospects for re-employment, a concern to policy makers struggling to revive the job market.

“Although the unemployment rate peaked at a higher level in the 1981-82 recession, the average duration of unemployment has been running much higher in the recent episode,” Valletta and Kuang said. The recent recession and rebound is similar to the “jobless recoveries” following the 1990-91 and 2001 downturns, they said.

“The labor market has changed in ways that prevent the cyclical bounce-back in the labor market that followed past recessions,” they said.

Chairman Ben S. Bernanke said last week the Fed is considering additional asset purchases after extending a pledge to keep borrowing costs low through at least late 2014, citing the “hardships imposed by high and persistent unemployment.”

The world’s largest economy probably added workers to payrolls in January, keeping the jobless rate at an almost three-year low of 8.5 percent, according to the median forecast of 74 economists surveyed by Bloomberg News.

To contact the reporter on this story: Aki Ito in San Francisco at aito16@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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