Are the Long-Term Unemployed on the Margins of the Labor Market?

Abstract

Long-term transition rates calculated from the Current Population Survey, the Survey of Income and Program Participation, and Rutgers University’s Work Trends Survey indicate that the long-term unemployed have a 20 to 40 percent lower probability of being employed 1 to 2 years in the future than do the short-term unemployed. In comparison with the short-term unemployed, for the long-term unemployed the job finding rate is less sensitive to the state of the business cycle, but their labor force withdrawal rate is more procyclical. A calibration exercise finds that the tendency of the labor force withdrawal rate of the long-term unemployed to decline in a recession and then rise in a recovery plays an important role in the well-documented loop around the Beveridge curve. Overall, the results suggest that the longer workers are unemployed, the less attached they become to the labor market.