Why job market is even worse than you think

Quick Vote

Are you worried about losing your job in 2008?

• Yes
• No
• Not sure

or View results

Video

More video

Financial institutions set layoff records as credit woes continue. Play video

Quiz Take the quiz

How safe is your job? Take this quiz to size up your chances of being fired. Good luck. 1. Have you ratcheted up your career skills? Have you learned something new in the past 90 days (mastery of a piece of software, an accounting formula, a foreign language, etc.)? Yes No

NEW YORK (CNNMoney.com) -- A government report on January jobs showing that employers trimmed payrolls for the first time in four years set off alarm bells.

But the report, which was released Friday, tells only part of the story about the underlying weakness in the labor market.

The number of Americans out of work for at least six months is rising - reaching levels more typically seen deep into a recession or period of job contraction, not at the beginning.

And while some economists believe that the drop in jobs reported in January might later be revised away to show a narrow gain, it's clear that the rise in long-term unemployment is a far more established trend and one economists say isn't going away anytime soon.

Harder to find a new job. The number of long-term unemployed stood at a seasonally-adjusted 1.4 million in January, up about 21% from year-earlier levels and up 3% from the previous month. The full-year average for 2007 was 1.2 million long-term unemployed, nearly double the reading for 2000 - just before the last recession.

For all of 2007, about 17.6% of those who were unemployed had been out of work six months or more. That compares to only 11.4% who were long-term unemployed in 2000.

And while the unemployment rate dropped to 4.9% in January from 5% in December, the latest reading showed 18.3% of the unemployed have now been out of work for at least six months.

"You have to understand that 5% unemployment today is worse than 5% unemployment 10-15 years ago," said Jason Furman, senior fellow, Brookings Institution.

Furman and others say long-term unemployment is not just a problem for those struggling to find jobs. It poses a risk for the economy as a whole and cuts into household earnings and economic output.

If 5% of the labor force is unemployed for a short time as they switch jobs, they could keep spending, drawing on a combination of government assistance and personal savings.

But those who are unemployed more than six months lose unemployment insurance benefits and are more likely to deplete savings to the point where they are forced to cut back on spending.

They also will be far more likely to accept jobs at lower pay than their previous positions, which puts downward pressure on wages.

"We are looking at a labor market already that is weak and set to get a lot weaker," said Dean Baker, co-director of the Center for Economic and Policy Research.

Job seeker surprised by difficulty. Les Tarlton had worked in the telecom industry for eight years when the company he was working for shut its operations near his suburban Dallas home in January 2003.

"I thought surely I can go out and get a job," he said. "I had a good reputation in the company. I had survived a lot of earlier layoffs. It wasn't like I lost my job because of anything I did."

But five years later he has yet to find a permanent job to replace the one he had doing business performance analysis. He's had a variety of short-term contract positions, but nothing long-term.

"Part of it is my age," said Tarlton, 54. "They can hire a person straight out of college for a lot less money. And while I have skills in business and finance, my college degrees in are in Christianity and psychology, my master's is in theology. That doesn't help."

Tarlton is now home schooling his six-year old and taking care of his other four children while his wife works. But the total household income is a fraction of what it used to be. While he still sends out about five resumes a week, he said he essentially gave up hopes of a new job about two years ago.

"We've burned through all of our retirement trying to survive," he said.

Problem could get worse As the stimulus package makes its way through the Senate, there have been pushes to extend unemployment benefits beyond six months.

Even if it's not included in this bill, House Speaker Nancy Pelosi said she would support separate legislation to address the growing problem.

"While it might have been premature to extend benefits in the past at this level of unemployment, today it could be overdue," said Furman.

If the economy does enter a recession, the problem of long-term unemployment could reach levels not seen since the early 1980's, according to Baker.

A report from the Congressional Budget Office last October confirmed that the long-term unemployment problem is a growing one, suggesting there could be a fundamental shift in the labor markets.

"People are less likely to become unemployed than in the past, but those who do become unemployed are more likely to remain unemployed for more than half a year," said the October 2007 report.

Older work force playing a role The CBO report didn't have any easy answers for this trend. But it suggested that the aging of the work force might be a major contributing factor.

Baker agrees that the demographic shift is probably part of the problem.

"Someone well into their forties who loses their job at their peak earning potential, they might be expecting a higher pay than someone in their twenties," Baker said. "Even if they're willing to take a lower paying job, the employer might decide not to offer it to them because they'll fear the older worker won't be loyal."

The CBO report added that some firms are using temporary layoffs less frequently than in the past. When someone loses a job today, it's likely a permanent separation.

Employers and workers getting more picky Officials in job outplacement firms, hired by firms to work with employees who have lost their jobs, say they're seeing some increase in the time it takes to find new positions even for those generally better educated workers with whom they work.

Cory Holbrough, senior vice president of Lee Hecht Harrison, said that employers for skilled positions are becoming more selective about new hires than they used to be.

"In the past they might have hired the best person who had eight or nine of the ten skill sets they were looking for," he said. "Now they are saying, 'We want all ten skill sets.'"

John Challenger, CEO of Challenger, Gray & Christmas, said the much-publicized downturn in the housing market is also playing a role, as some job seekers are less willing to relocate to take a new job if it's going to mean taking a large loss on their current home.

Along those lines, he noted that 11% of job seekers relocated in the fourth quarter of 2007, down from 15.6% in the fourth quarter of 2006.