Long-Term Unemployment Poses Rising Risk to the Economy

In April, the most severe month for job loss in the current downturn, 88% of those who recently lost jobs reported their layoff as temporary, meaning they expected to return to the same role within six months, according to the Labor Department. In September, the share of such optimists fell to 51%, Friday’s jobs report showed.

Meanwhile, those reporting themselves as permanent job losers rose to 3.8 million in September, from 2 million in April. That figure could rise further in October as airlines and
Walt Disney Co.
informed thousands of workers this week that temporary furloughs will become permanent layoffs.

Many of those who lost jobs are struggling to find other work. Last month, 58% of unemployed workers had been out of a job for at least three months, including 19% off the job for at least six, and who are considered long-term unemployed.

During the third quarter of 2020, 23% of those long-term unemployed were Latino workers and 21% were Black workers, both disproportionately large relative to their shares of the population.

“It will be much harder to bring back that workforce in an economy that’s moving into a long, slow recovery,” said Beth Ann Bovino, chief U.S. economist at S&P Global Ratings. “A lot of the businesses where those workers lost jobs are now gone.”

Online business directory
Yelp
said as of Sept. 15, 60% of the closed businesses it tracks, nearly 100,000, had no plan to reopen. Those closures, largely among small businesses, particularly hit restaurants and stores.

The growing length of the pandemic that took hold in the U.S. in March is one reason temporary job losses are becoming permanent, Ms. Bovino said. The longer it runs, the higher the chances of business failures, which result in more layoffs and fewer job opportunities. That would mean longer spells of unemployment, she said.

In the 2007-09 recession “people kicked to the sidelines took a long time to get back,” she said, adding this can weigh on consumers’ confidence and ability to spend. “Long-term unemployment comes with a stigma. Businesses make assumptions that there must be something wrong with workers that haven’t had a job for six months.”

There are also signs workers have become frustrated about their job prospects and have dropped out of the labor force. The labor-force participation rate, the share of adults working or looking for work, fell 0.3 percentage point to 61.4% in September, after trending higher from a recent low of 60.2% in April.

Participation among those 25 to 54 years old, in their prime working years, has edged down since June. That could in part reflect child-care difficulties for some parents.

The decline in participation was a factor that helped push down the unemployment rate to 7.9% in September from 8.4% in August. The rate only counts active job seekers.

The employment rebound driven by those on temporary layoff returning to work is nearing the end, said Michael Hicks, a Ball State University economist. “The bulk of remaining joblessness, and the historical decline in labor force participation, remain significant barriers to economic recovery,” he wrote in an analysis Friday.

Write to Eric Morath at eric.morath@wsj.com