Understanding the Trend Toward Long-Term Joblessness Research by Kevin M. Murphy and Robert H. Topel
Unemployment in the United States rose for 15 years (1968-1983)
and fell over the next 17 years (1983-2000), with cyclical swings
in between. In the 1990s, the unemployment rate fell below 4
percent for the first time since 1969. Today, the boom times
are clearly over. Furthermore, new research shows that in terms
of the big picture, the often-praised boom of the 1990s actually
represented little progress for American male workers.
In a previous study, University of Chicago Graduate School of
Business professors Kevin M. Murphy and Robert H. Topel, and
Chinhui Juhn of the University of Houston examined long-term
changes in joblessness among American men between 1967 and 1989.
Their initial study showed that a steep, steady decline in demand
for low-skilled workers had created high rates of unemployment,
labor- force withdrawal, and long spells of joblessness for
this group. These workers represent a wide range of occupations
and skill types, but they are mainly low-wage workers.
This decline in the demand for low-skilled workers can be traced
to numerous industrial changes, including the decline of manufacturing
as a major source of employment. In the past three decades,
such areas as business services, finance, insurance, and real
estate have grown considerably, all of which heavily favor higher-skilled
workers. Technological changes and changing patterns of international
trade and competition from abroad also have reduced the earning
power of low-skilled workers, while benefiting those with greater
skills and education.
Murphy, Topel, and Juhn's new study, "Current Unemployment,
Historically Contemplated," revisits these issues while
taking account of the economic boom of the 1990s. Using data
from the Bureau of the Census and the Bureau of Labor Statistics,
the authors analyze the evolution of joblessness in the United
States from 1967 to 2000 among American men ages 19 to 49. Did
the expansion of the 1990s really return the U.S. labor market
to conditions of the late 1960s, as the unemployment statistics
would seem to indicate?
As it turns out, the shift toward long-term joblessness implies
that particular rates of unemployment have a much different
meaning today than in past decades.
"There has been a growing fraction of less-skilled men
who would have been counted among the unemployed thirty years
ago who have simply withdrawn from the labor force," says
In the 1990s, even as unemployment was falling, time spent
out of the labor force was rising. The media may focus on the
current woes of corporate executives and former dot-com workers,
but the authors caution that in spite of what people have read,
long-term changes in the labor market have greatly favored skilled
workers. These high-skill workers have enjoyed the perks of
the economic boom times, with rising wages and stable employment
opportunities. On the other side of the spectrum, the changing
labor market has had a far greater impact on less-skilled, less-educated
workers below the median of the wage distribution, who have
seen their earning power diminish over the past thirty years.
The study shows that falling unemployment rates in the 1990s
greatly exaggerated the improvement in labor market conditions
for male workers as a whole, and for less-skilled males in particular.
Beyond the Unemployment Rate
The unemployment rate may be the most widely understood measure
of economic health, but there are many nuances to consider.
The authors distinguish between three different rates: unemployment
(out of work but looking for work during the past four weeks);
joblessness (out of work, whether or not looking for work);
and nonparticipation (out of work and not looking for work).
Murphy, Topel, and Juhn show that rising nonparticipation rates
offset the low rate of unemployment in the 1990s. Therefore,
even with a historically low unemployment rate, the economic
outlook for low-skilled workers has become increasingly grim.
This rise in nonparticipation appears to be due to an expansion
of the government disability program in the early 1990s, as
well as continued low levels of real wages for less-skilled
Job opportunities continue to exist, but those jobs have become
less attractive to the large fraction of the labor force represented
by less-skilled men. Since the 1970s, there has been a decline
in the relative and absolute wages for less-skilled workers
relative to wages for more highly skilled workers. Therefore,
the jobs available for less-skilled workers are not as attractive
in terms of earning power. Murphy and Topel point out that these
workers would be more likely to seek employment if their wages
Another major change has been the duration of jobless spells.
Nonparticipation in the labor force used to be a temporary event,
with workers experiencing short periods of unemployment between
"Now, nonparticipation is a much more permanent state
of affairs," says Topel. "Once you enter nonparticipation,
you basically don't come out."
Joblessness among less-skilled men has increasingly become
time spent out of the labor force, rather than time spent unemployed.
It is also important to note that despite rising wages and the
increased labor force participation for women, the high rate
of joblessness among less-skilled men is not the result of improved
opportunities for their working wives.
The authors find that more than 40 percent of the growth in
nonparticipation during this time period is associated with
an increase in men claiming to be ill or disabled, indicating
a shift in labor supply.
After 1984, eligibility standards for disability benefits were
substantially liberalized, which led to an increase in disability
payments. The authors note that the interaction of disability
benefits and labor market shocks are of key importance in understanding
rising rates of labor force withdrawal. Changing government
policies made it easier to collect disability payments at a
time when wages for low-skilled men were falling.
Another facet of the equation is the duration of jobless spells.
The study shows that the amount of joblessness for those who
did not work at all over a given year more than tripled, from
1.8 percent in the 1960s to 6.1 percent in 1999-2000, even with
two of the longest economic expansions on record. By the end
of the 1990s, the average duration of nonemployment spells was
over fifteen months, more than double the length of such spells
in the late 1960s. Jobless spells were longer in 1999-2000 than
any previous cyclical low of unemployment.
"The labor market is a less rewarding place than it was
before," says Topel. "Many of the people affected
by those changes in wages have found it to be such a less rewarding
place that it's no longer worth participating."
A Long-Term Story
Given the focus on the current economy and frequent reports
of the shifting unemployment rate, it is natural to ask how
a historical view of unemployment relates to existing economic
Murphy and Topel point out that the results of their study
have little to do with the economic policies of the current
Bush administration, or any of the administrations in the past
three decades. In addition, they emphasize that the unemployment
rate does not accurately reflect labor market conditions over
long periods of time.
"These are really structural changes in the labor market,"
says Topel. "This is not unique to the current recession.
The trends we see here really represent a long-term phenomenon."
Murphy notes that profound industrial and technological changes
have created a very different labor market for high-skilled
workers relative to low-skilled workers, which is an important
distinction for putting recent events in context.
"It may seem like a tough market for high-skilled workers
because of the tech boom, tech bust, and current market for
M.B.A.'s," says Murphy. "However, focusing on high-skilled
workers is really missing the point."
Kevin M. Murphy is George J. Stigler Professor of Economics at the University of Chicago Graduate School of Business and the University of Chicago. Robert H. Topel is Isidore Brown and Gladys J. Brown Professor in Urban and Labor Economics at the University of Chicago Graduate School of Business.