Workers out of a job for under 14 weeks were only 2.91 percent of the labor force in December, the lowest such year-end rate since 1952.
That short-term rate fell as low as 2.85 percent in August of last year, the lowest it has touched since 1953.
With overall unemployment still at 5 percent, the fact that so few workers are currently undergoing short-term unemployment spells highlights one of the glaring problems that has afflicted the U.S. since the financial crisis, namely high long-term unemployment. Fully 26 percent of the unemployed have been out of work for 27 weeks or longer as of December, well above the historical proportion.
The historic lows in the short-term unemployment rate also raise the stakes for a debate that has played out among economists within Federal Reserve over the past few years.
Some outside analyses, such as a 2014 paper by former Obama economic adviser Alan Krueger, have suggested that the number of workers facing long spells of unemployment matters less for the Fed’s macroeconomic goals than does the short-term unemployment rate. In other words, the current ultra-low short-term unemployment rate should lead the Fed to raise rates and tighten monetary policy faster than otherwise, because it hints that inflation will rise more quickly than it normally would at 5 percent overall unemployment.
The Fed’s own staff has discounted that possibility, finding in a November analysis that evidence from differing unemployment rates across U.S. cities suggests that there is “no evidence that short-term unemployment was a better measure of slack than total unemployment.”
Nevertheless, just how much weight to place on long-term versus short-term unemployment is one of the many questions Fed Chairwoman Janet Yellen will have to consider in the months ahead as she contemplates hiking rates.
Among other considerations, it’s likely that long-term unemployment will remain unusually high in the months ahead. Over the course of the recession, some unknown number of workers gave up on the job hunt because conditions were so bad. When these people told Census workers that they were not searching for jobs at the time, they fell out of the calculation of the official labor force and the unemployment rate calculation even though they wanted jobs work. When hiring recovered enough to draw those people back into the job hunt, they often tell Census officials that they have been unemployed for many months or weeks, a 2011 paper published by Federal Reserve system officials found. That means that, even though they were new to the ranks of the unemployed, from the government’s perspective, they entered straight into long-term unemployment. As a result, the long-term unemployment rate is set to remain high long beyond the recovery of short-term unemployment.
