Hysteresis: Something new to worry about.
So many Americans have been jobless for so long that economists are on the lookout for signals that the longest recession since the Great Depression may cause permanently elevated unemployment.
Never before in postwar America has finding work taken as long; 5.1 million people have been out of work for at least six months. Bureau of Labor Statistics data show that the average length of unemployment is 39 weeks. In November, it was 41 weeks, the highest since the U.S. began collecting the information in 1948.
If the labor market heals too slowly, job seekers face more and more erosion of their skills and connections, increasing odds that they’ll never work again. Economists call the phenomenon by a more academic word meaning that which comes later: hysteresis.
Federal Reserve Chairman Ben S. Bernanke says that while this hasn’t happened yet, because the weak economy keeps joblessness elevated, the risk that it could bolsters his case to keep record monetary stimulus in place.
The longer the unemployment rate stays elevated, the more likely that jobless people will “see their skills and labor-force attachment atrophy further, possibly converting a cyclical problem into a structural one,” Bernanke said in a March 26 speech in Arlington, Virginia.
Fed Vice Chairman Janet Yellen echoed that in an April 11 speech. While temporary joblessness may become more permanent if the labor market doesn’t heal fast enough, she said, there isn’t “substantial” evidence of that happening.
Some Americans are giving up on their search. The participation rate, the share of working-age people who have a job or are seeking one, fell to 63.6 percent, the lowest since December 1981, from 63.8 percent, Labor Department data show.
Unemployment fell to 8.1 percent in April from a 26-year high of 10 percent in October 2009.
Ian Shepherdson, chief U.S. economist at Valhalla, New York-based High Frequency Economics Ltd., says the number of openings relative to unemployment suggests that employers view the labor market as smaller than official figures suggest. that may lift wages and ultimately boost inflation as soon as next year, he said.
“If that’s right, then wages are likely to increase sooner and faster than the F ed expects,” Shepherdson said. If policy makers think the economy is worse than it really is, he said, “then eventually they’ll end up tightening too late and running an inflation risk.”
(Caroline Salas Gage and Aki Ito contributed to this report.)