Left Behind by the Job Market

By Amanda Rohrer
September 2011

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While the unemployment rate has been dropping in Minnesota, the number of people experiencing long-term unemployment continues to grow.

The ranks of the long-term unemployed have been expanding rapidly in recent years in Minnesota. In 2007 about 17,400 state residents had been unemployed for longer than six months. Four years later, as of June 2011, about 75,800 Minnesotans had been unemployed for at least six months, including 47,700 for more than a year.

To help this group get back to work, more needs to be known about the causes and circumstances of extended periods of unemployment. The long-term unemployed, however, can be an elusive group to define. Most labor market information, for example, relies on employer surveys or tax filings — sources of information that exclude the unemployed. That leaves two major sources of data to provide information about the long-term unemployed: the Current Population Survey (CPS) and unemployment insurance (UI) statistics (see sidebar).

Together, CPS and extended UI benefits data illuminate the basic characteristics of the unemployed — income, demographics, occupation, and industry. These datasets do not, however, provide information on job skills, job search skills, savings, or other factors that might keep these unemployed workers from finding or accepting other work. 

Long-Term Unemployment

Minnesota’s unemployment rate rose from 4.7 percent in December 2007 — the month the recession started — and peaked at 8.5 percent in May 2009, before falling back to 6.7 percent by June 2011.[1] While the decreasing unemployment rate indicates a return to normalcy for many Minnesotans, it also disguises a deeper problem.

During the recession, the unemployment rate increased because more people became unemployed and because more remained unemployed for longer. Chart 1 provides a visual. Short-term spells of unemployment (less than five weeks) began to pick up well before the recession started in December 2007. As the recession progressed and even after it ended, the number of workers experiencing longer durations of unemployment began to increase.

Now that layoffs have slacked off and hiring has picked up a little, the number of unemployed people has begun to taper off.  But the long-term unemployed — those unemployed 52 weeks or more — continued to rise at a steep pace through 2010. As a result, nearly one-third of the unemployed have not worked in more than six months compared with a pre-recession average of just fewer than 15 percent.[2]

Characteristics of the Long-Term Unemployed

So who are the approximately 70,000 Minnesotans who are being left behind by the job market? This count includes only those unemployed by the CPS definition: people who want work, are available to work, and are actively seeking work. Discouraged workers — that is, people who are filling their time with unpaid commitments or people who have accepted much lower-paying work out of necessity — are not included.

Industry

Because of sample limitations, it’s not possible to get reliable state-level information on the industries where unemployed people last worked. This information, however, is available at the national level. The industry represented most heavily among the long-term unemployed is also the one that has been hardest hit by the recession — construction (see Table 1). Professional and business services, however, is also over-represented relative to its share of the workforce. Some of those workers could have been doing support work for construction or manufacturing firms, and they were laid off because of the declines in those industries. Educational and health services fared a little better, with a smaller relative share of that sector’s workers unemployed long term in 2010. Still, while workers in a few industries are disproportionately affected by long-term unemployment, no industry has been immune.

Demographics and Education

Table 2 summarizes rates of unemployment and long-term unemployment by different demographic and educational categories in Minnesota. Unemployment disproportionately affects minorities and the less-educated, as well as men and young people. How these groups experience unemployment diverges, however. 

Age: Though the youngest workers have the highest unemployment rates, their long-term unemployment is in line with other age groups, suggesting that younger workers are both the first to be fired and the first to be hired.

Sex: The pattern is similar for men and women. Construction and manufacturing, the industries hardest hit in the recession, predominantly employ men, resulting in much higher unemployment rates for males. Long-term unemployment rates, however, are much more balanced for the two sexes, indicating that women have a comparatively harder time finding jobs.

Education: The more educated a worker, the less likely he or she is to be unemployed. Long term, that pattern is exactly the same, indicating that education insulates both against layoff and long-term unemployment.

Race: Measures of race and ethnicity can be less reliable because of sample limitations, but black and Hispanic Minnesotans are more likely to be unemployed and unemployed long term than other racial groups.

While unemployment and long-term unemployment do not affect all groups equally, there is also no single profile that applies to all workers experiencing long-term unemployment. Not all of the people who are unemployed have some fundamental skills mismatch. They represent all industries and have worked in some of the same occupations that are coming back with relative strength. They are not predominantly aging workers — outdated and overpaid — nor are they the most junior workers, easy to fire because they lack seniority and skills. There are differences in unemployment rates along racial lines, but since the population is largely white, long-term unemployed workers are also largely white. The only trait that most share is lack of education. A little over one-half of the long-term unemployed have no education beyond high school, compared with less than 40 percent of the Minnesota population as a whole.[3]

Behavior and Employment Prospects

Nationwide, 44.3 percent of people who had been unemployed six months or more in the last year are now working.[4] While this information is not typically tracked in Minnesota, the following analysis links data on extended UI recipients with employment and wage data from tax records. This allows us to identify when, in what industry, and at what wage long-term unemployed workers were eventually re-employed.

Extended benefits began being offered in third quarter 2008 and are still available. In that time, 65.4 percent of the unemployed workers who qualified for extended UI benefits at some point since 2008 had found work again. The average time to find a new job after qualifying for extended benefits was 13 months for those people remaining unemployed for at least six months and eligible for benefits. 

Overall, 45.2 percent of the people who ultimately found jobs were re-employed in the same industry as before their layoff. Table 3 shows that mining and construction were the top two industries where workers were re-employed in their original industry. Mining is a small industry that has recalled many workers over the past year. Construction is a high-paying industry with specialized skills. Many workers in this industry who qualified for UI likely were willing to wait out their spell of long-term unemployment until they could find work in construction again.

Educational services and health care and social assistance were two industries that were not as impacted by the recession. Therefore it is not surprising that laid-off workers in both industries were eventually able to find work in the same industry. Moreover, both of these industries require specialized skills and education, so employers are motivated to find experienced workers who are committed to finding work in their original industry.

Some of the industries with the lowest rates of re-employment — retail trade, public administration, finance and insurance, real estate and rental and leasing — are dominated by skills that are more likely to translate across multiple industries, such as customer service, sales, general office skills, quantitative skills, and computer skills. Manufacturing is one significant exception. The industry was hit hard during the recession and is just now recovering. If this analysis were repeated in about a year, results may show that workers with experience in manufacturing before the recession are in fact finding their way back into manufacturing firms.

CPS data hint at continuing instability for many of the formerly long-term unemployed. Of the Minnesotans who spent at least six of the last 12 months unemployed between 2007 and 2010, 24 percent had worked for at least two employers, and 30 percent of those people worked for at least three employers.[5] ^.This suggests that in the aftermath of the recession many re-employed workers face a series of short-term positions, likely without benefits, paid leave, or job security.

 

[1]Local Area Unemployment Statistics at www.positivelyminnesota.com/laus.

[2]Current Population Survey (CPS) microdata, via IPUMS CPS, 2007-2010.

[3]CPS microdata, via IPUMS CPS, 2007-2010.

[4]”A Year or More: The High Cost of Long-Term Unemployment,” PEW Economic Policy Group. April 2010. Available online at
www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Economic_Mobility/PEW-Unemployment%20Final.pdf.

[5]CPS microdata, via IPUMS CPS, 2007-2010.

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