Understanding and Responding to Persistently High Unemployment

February 16, 2012

The United States is Experiencing the Longest Stretch of High Unemployment Since the Great Depression

The rate of unemployment in the United States has exceeded 8 percent since February 2009, and CBO projects that it will remain above 8 percent until 2014.

  • Slack demand for goods and services is the primary reason for the persistently high levels of unemployment observed today.
  • When demand ultimately picks up, structural factors—such as mismatches between employers' needs and workers' skills and locations, the erosion of unemployed workers' skills, and the stigma of being unemployed—may continue to keep unemployment higher than normal.

Some Policies Could Increase Demand for Workers

In analysis of a number of tax and spending policies designed to increase output and employment in 2012 and 2013, CBO found the largest increases in employment per dollar of budgetary cost would be produced by:

  • Reducing the marginal cost to businesses of adding employees and
  • Targeting people most likely to spend the additional income (generally, people with lower income).

Other Policies Could Also Reduce Unemployment

Lawmakers could aim to reduce unemployment by:

  • Improving workers' skills,
  • Modifying the unemployment insurance program, or
  • Facilitating transitions to work.

Such policies could be implemented using mechanisms ranging from federal block grants to direct federal operation. But they would probably not have a significant effect on unemployment over the next two years because of the difficulties of scaling them up in that span of time. Nonetheless, by reducing the extent of unemployment and long-term unemployment in the future, they might have longer-term benefits.