The next big wave

You may have seen reports yesterday from the Commerce Department that the Commerce Department followed up with disappointing news, noting that personal incomes fell 0.1% in September after rising 0.4% in August.

Today, the Free Exchange blog, written by The Economist reporters, looks at what's behind those numbers:

This recession, the longest and deepest of the postwar period, has generated an unusually high level of long-term unemployment. Nearly half of currently unemployed workers have been off the job for more than six months. Congress initially responded to the big rise in unemployment and long-term unemployment by steadily lengthening the duration of emergency unemployment benefits. In the hardest hit states, jobless workers can now collect unemployment benefits for up to 99 weeks. Democratic leaders have tried several times to create a new tier of benefits applying to those still out of work after the 99 week period, but they have been unable to put together the necessary votes. And so benefits max out at just under two years. You may note that the recession began nearly three years ago, and the worst part of the recession, coinciding with the onset of financial crisis, started just over two years ago.

And so what we're seeing is the first big bulge of jobless workers exhausting their benefits. Over the next few months, that bulge will become a wave. Things will become significantly worse next month when existing benefits expire. By April, nearly 4 million jobless Americans will have run out of benefits. ...

[Some will welcome] the disappearance of a major disincentive to find new work has vanished, and so employment should rise rapidly between now and the spring. If all of the newly benefit-less workers find new jobs, the unemployment rate will drop a good two percentage points.
The problem, of course, is that firms are still very reluctant to hire amid weak demand. The ratio of jobless workers to job openings remains quite high.

Read the full entry: The 99ers.

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