Cleveland Fed Economist Says Prolonged Jobless Recovery Could Dampen US Productivity

The sharp rise in unemployment over the past several years is not due primarily to a wave of job losses but rather to the fact that once unemployed, workers' chances of finding employment have fallen dramatically, says Murat Tasci, an economist at the Federal Reserve Bank of Cleveland. Lower job finding rates mean workers are unemployed for longer durations, during which they can lose industry- and job-specific skills. This not only reduces workers' odds of finding a job, but also reduces their productivity when they finally do find employment.

Tasci also notes:

--The pattern of the job finding and job separation rates in the 2008-2009 recession is similar to that of the previous two recessions, where the decline in the job finding rate has been playing a bigger role in unemployment rate fluctuations. A dominant role for the job finding rate during a recession means longer unemployment durations.

--The mean and median unemployment durations are currently at 30 and 19 weeks, respectively, close to their record highs. These measures also disguise the significant number of workers who are out of work for even longer periods. For instance, 41 percent of those who are unemployed have been out of work for more than six months, the highest this statistic has ever been.

--Once these workers do find a job, data show that their new wages are lower than similarly educated workers and that this disparity continues for some time.

--Significant underemployment could be a major contributor to a jobless recovery. The average weekly hours of production workers, at 33.1, currently are near their lowest level (33.0 hours), while the number of workers employed part-time jumped by more than 4.1 million since December 2007. This existing slack may prevent rising demand for labor from translating immediately into new jobs.

Click here for Tasci's complete Economic Commentary and video interviews with the economist.