Fed Researchers Optimistic on Long-Term Unemployment Drop

Federal Reserve researchers said they see a “number of reasons to be optimistic” about improvement in the U.S. labor market after a “sizable decline” this year in long-term joblessness.

The Fed board economists, in a post on the central bank’s website, cited a shrinking proportion of people unemployed for more than six months, greater stability in the labor-force participation rate and an increase in the ratio of employment to population.

“The fight against unemployment during the recent recovery has been mainly one of bringing down the long-term unemployment rate,” according to Tomaz Cajner and David Ratner, researchers at the central bank.

Long-term unemployment, which Chair Janet Yellen has called a “grave concern,” has fallen at a pace which has improved the job market faster than Fed estimates. The main jobless rate declined to 6.1 percent last month, the lowest in almost six years and near a level central bank officials didn’t expect to see until the end of 2014.

The Federal Open Market Committee plans to release a statement on monetary policy on July 30 after a two-day meeting in Washington.

About two-thirds of the drop in the unemployment rate since the end of 2010 was due to long-term jobless finding employment, Cajner and Ratner said. The overall rate has fallen from 9.6 percent at the end of 2010, Labor Department data show.

Lost Connection

The Fed economists said they find cause for optimism from signs that the long-term unemployed aren’t losing a connection to the labor force and their ability to find jobs doesn’t differ significantly from those out of work for shorter periods.

Among the unemployed, 32.8 percent have been out of work for more than six months. The proportion in April 2010 was 45.3 percent, a record since Labor Department data begin in 1948. The level had never exceeded 30 percent before 2009. The previous peak was 26 percent in 1983, the data show.

The proportion of long-term jobless is among the labor-market gauges watched by Yellen, along with the labor force participation rate. That gauge, which measures the share of working-age people in the labor force, was 62.8 percent last month, matching the lowest level since 1978.

The Fed researchers said the drop in long-term jobless since December accounts for almost the entire decline in the unemployment rate during the period.

‘Appear Consistent’

“These encouraging developments appear consistent with rising employment of those previously reported as long-term unemployed,” the Fed economists said.

More long-term jobless finding work is a “healthy development,” Yellen said last week in testimony to Congress.

“While long-term unemployment remains at exceptionally high levels and is a grave concern, I do think we are seeing improvements as the job market is strengthening,” Yellen said to the Senate Banking Committee on July 15. “As confidence in the recovery grows and it strengthens, we should definitely expect to see improvements.”