Economists See ‘Lengthened Eligibility Period for Unemployment Benefits’ As Factor in High U.S. Unemployment

June 27, 2012 - 4:22 PM

Unemployment Benefits

People wait in line at a Portland, Oregon job fair in Feb. 2012. (AP Photo/Rick Bowmer)

(CNSNews.com) - The Organization for Economic Cooperation and Development, a international group of economists based in France, says the slow economic recovery and record long-term unemployment in the United States may lead to chronic “structural” unemployment – the type of unemployment that is always present and immune to periods of boom or bust.

OECD economists, in a new report, blamed two factors for the persistently-high, long-term unemployment in the U.S. -- poorly designed government benefits and a poor economic recovery.

“The increased duration (of high unemployment) reflects the slow recovery and may also owe, in part, to the lengthened eligibility period for unemployment benefits,” the report said.

In other words, a lack of available jobs for those laid-off during the recession and extraordinarily generous government benefits combine to keep people out of the labor force and even encourage some to leave for good.

The group also called for reforms to federal disability assistance payments, citing the fact that many long-term unemployed have claimed to be disabled in order to receive further federal benefits. OECD criticized the federal government for allowing this to happen, saying that it could lead to greater long-term unemployment.

“Efforts are needed to reduce the reliance on disability benefits because few of the recipients ever return to the workforce.

The OECD report noted that structural unemployment – not the cyclical rate most commonly reported by the government – has likely permanently risen in the U.S.

While cyclical unemployment fluctuates, rising in times of recession and dropping in growth periods, structural unemployment is built-in -- often described as a “mismatch” between what employers need and what job-seekers can offer. In other words, there may be jobs, but not enough skilled workers to fill them.

OECD said its estimates indicate that structural unemployment has increased slightly, to around 6 percent, while cyclical unemployment is more than 2 percent of the labor force.

“However, structural unemployment may well already have risen more than this estimate would suggest, and there is a risk that it could increase still further given the high levels of long-term unemployment,” OECD said in its report Tuesday.

The record levels of long-term unemployment – now averaging 40 weeks, according to government figures – mean that higher unemployment could become permanent, as discouraged job seekers leave the workforce for good, the report said.

To remedy this, OECD calls for a combination of job training programs and education reforms, some of which were part of President Obama’s failed budget proposal. OECD economists called for combining the government’s current passive unemployment benefits system that merely pays workers who are unemployed with an “active” one that trains workers and helps them find work.

“[T]hese passive forms of assistance would provide much greater value to the unemployed if they were offered in tandem with a more active set of re-employment services that can connect job seekers with job opportunities, facilitate job search, and guide individuals towards training and education.”

OECD also called for expansion of the job-creation tax credits Congress enacted in 2010, saying that Congress should tailor them to rewarding employers who actually increased jobs, rather than President Obama’s proposal of rewarding employers who merely increased their payrolls.

The second solution OECD recommended was reforms in education, including a focus on making higher education cheaper, expanding community colleges, and offering advanced vocational training.

“Education and training are key to improving skills, reducing mismatches, and addressing the problem of slow wage growth. Efforts such as Race to the Top and measures to strengthen community colleges are steps in the right direction, but more could be done, such as reducing financial and other barriers to tertiary education and providing vocational training opportunities in secondary school.”

The OECD got its start in 1960, when 18 European countries plus the United States and Canada joined forces to create an organization dedicated to global development. Today, it has 34 member countries.