Fed economists optimistic on drop in long-term US unemployed

NEW YORK (REUTERS) - There are many reasons to be optimistic about the recent drop in long-term unemployment, Federal Reserve economists said in a paper published on Monday, the latest evidence helping to put to rest a debate that gripped the US central bank earlier in the year.

The paper, focused on Americans unemployed for 27 weeks or more, found that they have had better luck landing lasting jobs in recent months, aligning them more closely with those who have been out of work for shorter durations.

The findings come as economists and Fed officials grow more sanguine about the prospects of the long-term unemployed, a segment of the labour market that declined by 1.2 million in the last year and totalled 3.1 million in June.

Earlier this year, a debate raged within economic circles over whether such workers were becoming marginalised and even demonised by employers.

Professor Alan Krueger of Princeton University, who has championed the idea, was among those arguing that the skills of the long-term unemployed were growing rusty and their attachment to the labour market was growing tenuous.

But Fed chairman Janet Yellen and others have been sceptical that these workers have little impact on inflation.

Ms Yellen, instead, has stressed that the long-term unemployed will eventually find jobs and boost overall wage growth as long as the Fed keeps in place its stimulative monetary policies.

"While long-term unemployment remains at exceptionally high levels and is a grave concern, I do think we are seeing improvements as the job market is strengthening," Ms Yellen told a congressional panel last week.

The paper, from Fed Board economists Tomaz Cajner and David Ratner, appears to back up that view.

It notes that the drop in overall joblessness in the first half of the year, from 6.7 per cent to 6.1 per cent, is almost entirely due to a drop in the long-term unemployment rate.

At the same time, the workforce participation rate, or the portion of Americans either working or actively seeking jobs, has been low but stable, while the employment-to-population ratio has edged higher.

"These encouraging developments appear consistent with rising employment of those previously reported as long-term unemployed," the economists wrote, noting "a number of reasons to be optimistic".

They conclude that the job-finding rate of long-term unemployed has drifted higher with their ability to find stable employment, and their attachment to the labour market improving along with that of the short-term unemployed.