Monday, November 18, 2013

Report: Unemployment, UI Benefits & DI Claims (2013)

"It has been a painful slide. A five-year spell of unemployment has slowly scrubbed away nearly every vestige of [her] middle-class life. She is a 53-year-old college graduate who worked steadily for three decades. She is now broke and homeless." ~ Annie Lowrey, from the New York Times, November 17, 2013.

That pretty much sums up the situation for millions of other unemployed Americans today. Michigan Stadium has a capacity of about 110,000 people (photo below). Now multiply that number by 182 --- that's how many people we have in 2013 who want a job.

Michigan Stadium

* Editor's Note: This post was written using academic studies and reports, including government statistics and analysis with links to the original sources (or, if linked to another post, includes the original links to those sources.) This post accurately portraits recent facts covering the topics of unemployment, disability claims and extended unemployment benefits. Highlights from this post:
  • Debunks the myth that extended federal unemployment benefits causes sharp rises in unemployment.
  • Debunks the myth that waves of people are leaving their jobs to go on Social Security disability --- or that people were using the program to extend unemployment benefits.
  • Notes that those unemployed longer than 6 months only has about a 10% chance of ever finding another job --- and that the odds are far worse for those unemployed longer and/or the older unemployed workers who are over 50 years old (who might have a 0% chance after 1 or 2 years).
  • Empathizes the fact that there are actually 20 million Americans who are unemployed (not 11.3 million), and that including part-time workers, 28 million would like a full-time job.
  • In reality, using more accurate numbers, there are at least 6 unemployed Americans for every job opening listed.
  • To date: The official U-3 unemployment rate is 7.3%, the U-6 rate is 13.8%, the Alt U-6 rate is over 15.2%, and the U-7 rate is over 16.2% --- whereas, shows as many as 23% of all working-age Americans could be unemployed (meaning, about 1 out of every 5 who would "normally" be in the labor force are now jobless).
  • Counting "discouraged workers", the long-term unemployed actually represents a rising share (not less) of the unemployed when using the broader measures for unemployment (such as the U-6 and U-7 rates)
  • Early retirees and those who went on disability since 2008 only represents a small percentage of those who left the labor force (known as "discouraged workers").
  • Refutes misinformation in the mainstream media: Although disability "claims" have risen since the Great Recession (as the CBO notes, usually does during every economic downturn), actual disability "awards", especially as a percent of the population increases, have only risen marginally in proportion, and that actual "awards" were down last year.
  • Over 1.3 million jobless Americans will soon lose federal extended unemployment benefits, which COULD CAUSE more unemployment.

In an excellent New York Times article titled Caught in a Revolving Door of Unemployment, Annie Lowrey notes that long-term joblessness is now one of the defining realities of the American work force.

She also points out that "a newly jobless worker has about a 20 to 30 percent chance of finding a new job. By the time he or she has been out of work for six months, though, the chance drops to one in 10, according to research by the Federal Reserve Bank of San Francisco."

Chart from the San Francisco Federal Reserve (SFFR):

Chance of finding a job in 2013

According to another report cited by economists Dean Baker and Kevin Hassett in an earlier (and excellent) New York Times article called The Human Disaster of Unemployment (which was also referred to in a congressional hearing last year for older workers) a worker between the ages 50 and 61, and who had been unemployed for 17 months or longer, only had about a 9 percent chance of ever finding a new job. And the longer they were unemployed, the lower their chances for ever finding work again.

Andrew Sum, director of Northeastern University’s Center for Labor Market Studies, says, "The longer you’re unemployed, the more likely you are to leave the labor force." And the longer any worker is unemployed, the longer one tends to stay unemployed. Businesses hesitate to hire people who have not been working. Those workers tend to get "discouraged". The result is what wonks call hysteresis, where the scars from joblessness diminish the chance of future employment and reduce future earnings. In an exposé by The Atlantic, they found that employers intentionally screen out the long-term unemployed, even if their résumé has the same work experience as someone unemployed for less than six months.

Now, besides just considering their age or length of unemployment, one would also have to consider any sub-standard credit reports (because they were unemployed), medical records indicating below average health, any back taxes owed, a mortgage foreclosure because of a job loss, or a rejected disability claim by Social Security --- and the odds become much worse, especially for an older person --- of ever finding a job again (if ever at all). Read: Older and unemployed? Your are SOL.

So based on several studies and reports (and on my own observations, reading, e-mails and personal experience), if you are over 50 and unemployed for 5 years or longer (unless you have a very rare and valuable skill --- or you are very well-connected), one probably has a 0% chance of ever finding work again.

Other bullet points from the previously mentioned report from San Francisco Federal Reserve:

  • The people who have been out of work a very long time represent a rising share of the unemployed. This shift towards very long-term unemployment also tends to increase average duration.
  • Job-finding rates decline as unemployment duration lengthens. Such a pattern implies that the long-term unemployed face greater obstacles to finding jobs than the short-term unemployed.
  • Some degree of elevated long-term unemployment may be here to stay [and] the primary explanation for historically high long-term unemployment is the persistent weakness in overall economic activity and [lack of] demand for labor.

We are still negative jobs from the Great Recession --- 7.8 million jobs created vs 8.7 million jobs lost.

And according to the NCES, a research arm of the U.S. Education Department, the U.S. also had approximately 18 million high school graduates from 2008 to 2013. In a 14-page report last February by Rutgers - John J. Heldrich Center for Workforce Development, they noted a whopping 44% of high school students were unemployed. College grads are taking jobs that high school dropouts once hoped for.

Also, a Congressional hearing on the long-term unemployed (Senate Hearing 112-541) had determined that too many older workers who were laid off during the Great Recession haven't been offered jobs, and still remain long-term unemployed.

Regarding the real number of Americans unemployed: As I have already calculated, despite the Bureau of Labor Statistics report of 11.3 million Americans being unemployed, if you include those who are no longer counted by the government, there are actually 19.93 million who are unemployed and want a job --- and another 8.1 million if you added those individuals who were working part-time, because either their hours had been cut back or because they were unable to find a full-time job.

The Bureau of Labor Statistics reports the "official" unemployment rate as 7.3% today, but the BLS also has a U-6 rate (at 13.8%), but that doesn't include all the unemployed. If one takes the official broader definition of unemployment, or the U-6 rate, the ratio becomes 6 unemployed people per each job opening. There's also an Alt U-6 rate that includes many "discourage workers", which is currently at 15.2%.

The BLS used to have a U-7 rate. During the 1982 recession the U-7 rate reached 15.3%, its highest level as of October 2009 when the officially reported unemployment rate had peaked at an adjusted 10% --- meaning, the U-7 rate at that time was the highest since the last year of the Great Depression in 1941. Currently the U-7 rate is at 16.2%.

And there's also Shadowstats showing 23%. So how can the unemployment rate keep falling when there's not been enough jobs created to keep up with high school graduates, which is about 3 million a year? We've had 18 million since the economy collapsed in 2008.

As the Economic Policy Institute has noted: "Indeed, all of the improvement in the unemployment rate over the last year was due to people either dropping out of, or not entering, the labor force due to weak job opportunities (Shierholz 2013b). The share of the working-age population that has a job actually declined over the last year. And as I have previously note: There are actually more Americans unemployed today than at the peak reported in 2009. The EPI's statement actually applies to the last 4 years, not just the last year.

So it's here where I disagree with Annie Lowrey when she writes, "2.5 million unemployed people who have not worked in six months or more are receiving no federal jobless benefits." I am just one of about 7 million 99ers who were laid off 5 years ago who exhausted all 99 weeks of UI benefits and never found work again, while being too young to take an early Social Security retirement. See my post at the Economic Populist: Long-Term Unemployed Baby Boomers in 2013. As the White House reported in 2011, at one time or another, almost 18 million unemployed Americans received federal extend unemployment benefits. 18 million Americans were out of work at least 6 months to many jobs were created during that time (not counting churn)?

The Wall Street Journal reported that not enough people were quitting their jobs, and that a humming economy usually means a high rate of churn in the work force --- where an employee voluntarily leaves one job for another in search of a higher paying job and new challenges. This is supposed to be because, ultimately, one worker's exit from a job will open the way for someone else to jump on the ladder.

A research paper by Ghayad and William Dickens (Federal Reserve Bank of Boston) showed that the long-term unemployed are struggling to find work, no matter how many job openings there are. In an interview for the Wall Street Journal Ghayad says, "Once you are long-term unemployed, nobody calls you back." A U.S. Government Accountability Office study identified employer reluctance to hire older workers as a key challenge that older workers face in finding reemployment. A study by the Urban Institute also reported that older adults took longer to find work when they lost their jobs

As an aside: As usual, if you have a job, you're working harder and longer, but being paid less. Third quarter stats from Market Watch:

"U.S. productivity increased by a 1.9% annual rate and the output of goods and services jumped 3.7% --- while hours worked rose by 1.7% --- but inflation-adjusted hourly compensation of American workers declined by 1.3%."

About Social Security Disability

According to SSA, since the Great Recession, there was an estimated 1 million American workers who took an early Social Security retirement with reduced benefits --- and another 1.4 million net recipients on disability from December 2008 (7,427,203) to December 2012 (8,827,795).

Editor's Note: In her excellent article about the unemployed, Annie Lowrey mentioned "surging rolls" in the Social Security disability program. I would like to clarify this as I noted in another post at the Economic Populist about disability: "According to the Social Security Administration, actual SSDI awards (not claims or applications) declined from 2011 to 2012, and SSDI terminations were up, for a net increase of only 2.94% for people in current payment status for SSDI benefits."

As Robert Oak at the Economic Populist had noted: " More relevant is how those receiving disability payments has grown relative to the growth in overall population. The amount of people as a ratio to the population has been steadily increasing, but less so in recent years. When we look at the rate of change, we see that growth rates did not suddenly explode in 2008 and 2009, but are much more a reflection of the general trend in more of the population receiving disability benefits overall."

See the post: Report: Disability Claims and Awards Declined: "A Congressional Budget Office study says that when opportunities for employment are plentiful, some people who could qualify for disability benefits find working more attractive. Conversely, when employment opportunities are scarce, some of those people participate in the disability program instead. Indeed, applications to the program increased..."

Earlier this year, in a study by Jesse Rothstein (University of California, Berkeley and NBER) he found that there was "no indication that expiration of UI benefits causes DI applications" (debunking earlier claims that the Wall Street Journal made, then later retracted.)

Last year the Congressional Budget Office also did study on this subject, and according to the Huffington Post, had found that "The rise in America's ranks of disabled stems from an aging population, a surge in women workers, changes in the law in the 1980s and a terrible economy in which disabled people can't find jobs" and that "the biggest jump in the disabled population came from aging Baby Boomers."

Another study says, "As the U.S. population grows older, the number of years Americans can expect to live with disability from causes such as depression and low back and neck pain has increased." (For older uneducated men working in labor intensive jobs, this could be expected.)

Actual disability awards versus claims 1993 to present

About Federal Extend Unemployment Benefits

In another article by Anne Lowrey, she also notes:

"Unless Congress acts, during the last week of December an estimated 1.3 million people will lose access to an emergency program providing them with additional weeks of jobless benefits. A further 850,000 will be denied benefits in the first quarter of 2014."

The Economic Policy Institute reports that if the federal extended unemployment program is discontinued, the economy will lose 310,000 jobs.

"The vast majority of the unemployed are not going to find a job no matter what they do. Furthermore, job seekers vastly outnumber job openings in all major industries, highlighting that the main problem in the labor market is a broad-based lack of demand for workers—not, as is often claimed, available workers lacking the skills needed for the sectors with job openings (Shierholz 2013a)."

I also mentioned this in another post: Currently, a little over a third of the unemployed (3.85 million out of 11.3 million) receive some form of state or federal benefits. Any current extended benefits will continue for those receiving them, but they will not be renewed at the end of this year. And there will be no more extended benefits for those going on unemployment now.

The Media Misinformation about Extended Unemployment Benefits being the Cause of Unemployment

As I noted in a personal blog about my own circumstances of being unemployed and receiving UI benefits: "Unemployment insurance benefits do not cause unemployment; just as Social Security disability benefits do not cause someone to become disabled; just as having health insurance does not cause someone to become sick."

We have heard reports (primarily by "conservative" news outlets, blogs and think tanks) that unemployment benefits induces people be become dependent on the government, and that UI benefits extends the duration of unemployment longer, creating a higher unemployment rate...even though there are not enough jobs for millions of people. That is patently false.

First of all, there were many people whose terms of duty expired in the military, who elected to first receive UI benefits before drawing their military pensions --- or older workers in the private sector who, once laid off, had no intention of ever reentering the labor force before drawing their union pensions or 401ks and then applying for Social Security benefits. These people weren't competing for jobs. But even so, when considering those who held out the longest while seeking the better paying jobs, these cancelled out those who weren't looking for work.

According to three researchers at VOX, extended unemployment benefits "encourages job seekers to prolong their search." But in the last paragraph of their research they write:

"Interestingly, recent studies conclude that the US benefit extension programs of the Great Recession increased unemployment significantly, but by less than half a percentage point (36-page study: Rothstein 2011, Farber and Valletta 2013). This evidence suggests that the unemployment insurance extensions in the US were less costly than previously thought."

But in the San Francisco Federal Reserve (SFFR) study that they cited, they actually wrote:

"Interestingly, our estimates show a marginally significant (though small) increase in the exit rate to employment due to extended benefits for the UI ineligible individuals in the 2007-2012 period. This may reflect a spillover from those eligible for UI to those not eligible for UI. If more generous extended benefits lead to longer durations of unemployment for those eligible, this may increase opportunities for those who are not eligible."

The SFFR also goes on to say, "Long-term unemployment has persisted remarkably in the aftermath of the recession. The unprecedented extension of unemployment insurance (UI) benefits up to 99 weeks from 2009 through mid-2012 appears to have lengthened duration by a small to moderate amount (Rothstein 2011, Daly et al. 2012). This effect has diminished as UI recipients have exhausted their maximum benefits and Congress has scaled back the program. On the other hand, some degree of elevated long-term unemployment may be here to stay. Recent research shows evidence of a modest increase in U.S. structural unemployment since the recession (see, for example, Daly et al. 2012, Elsby et al. 2011). However, this research also suggests that the primary explanation for historically high long-term unemployment is the persistent weakness in overall economic activity and demand for labor."

The Fed notes: "There are at least two pathways through which extended benefits could reduce exit from unemployment:

1. The unemployed could reduce search effort or maintain a higher reservation wage. Either results in longer time until an unemployment spell ends in a new job.

2. The unemployed could remain attached to the labor force and searching (perhaps minimally) when, without extended benefits, they would exit the labor force.

In the Fed study, they concluded: " We estimate that extended UI increased the overall unemployment rate by only about 0.4 percentage points in the recent episode, which is small in comparison with the peak unemployment rate of 10 percent."

Below are more excerpts from their study:

We find a small but statistically significant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment arising from UI extensions. The effect on exits and duration is primarily due to a reduction in exits from the labor force rather than a decrease in exits to employment (the job finding rate). Although the overall effect of UI extensions on exits from unemployment is small, it implies a substantial effect of extended benefits on the steady-state share of unemployment in the cross-section that is long-term.

The negative effect of extended benefits on the exit rate from unemployment is driven largely by individuals staying in the labor force longer, perhaps to collect benefits, rather than by individuals reducing search effort and taking longer to find jobs. There is no significant effect of exhaustion of benefits on exit to employment (the job-finding rate) in the earlier period.

We find that the effect on exit from unemployment occurs primarily through a reduction in labor force exits rather than through exit to employment (job finding). This is important because it implies that extended benefits do not delay the time to re-employment substantially and so do not have large first-order efficiency consequences. The major effect of extended benefits is redistributive, providing income to job losers who would have exited The labor force otherwise (consistent with Card et al. 2007).

While we find small effects of extended benefits both on exits from unemployment and on the expected duration of completed unemployment spells, our estimates imply a substantial effect of extended benefits on the share of unemployment in the cross-section that is long-term.

Overall, our estimates suggest that extending unemployment insurance benefits in weak labor markets has virtually no effect on the rate of job finding but that, on average, unemployment spells are somewhat longer as a subset of UI recipients remain nominally unemployed rather than exit the labor force. In addition to these limited implications for economic efficiency, we find only small impacts on the aggregate labor market. We estimate that extended UI increased the overall unemployment rate by only about 0.4 percentage points in the recent episode, which is small in comparison with the peak unemployment rate of 10 percent.


  1. There are almost twice as many people unemployed today than there were at the height of the Great Depression.

    Also today, the DOW JONES hit 16,000 --- another record high --- the highest ever in history.

  2. The Congressional Budget Office called extended federal UI benefits among the most effective forms of government stimulus.

    Michael Feroli, chief United States economist at JPMorgan Chase, has estimated that allowing federal extened UI benefits to end would drain about four-tenths of a percentage point from first-quarter economic growth.

    Paul Krugman: A Permanent Slump? --- "What if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?"


    Study on Social Security Disability Insurance (SSDI) 2013