By Steven K. Beckner

LOS ANGELES (MNI) – The U.S. economy is in for a prolonged period
of joblessness, and this has negative implications for productivity,
according to research at the Cleveland Federal Reserve Bank.

Cleveland Fed economist Murat Tasci, writing in the Bank’s latest
Economic Commentary publication, finds that the unemployment rate (9.7%)
in February) is apt to stay high for some time because of the longer
than usual duration of unemployment for those who lose their jobs.

Tasci is on the economics staff of Cleveland Fed President Sandra
Pianalto, who is a voting member of the Fed’s policymaking Federal Open
Market Committee this year.

“The sharp rise in unemployment over the past several years is not
due primarily to a wave of job losses but rather to the fact that once
unemployed, workers’ chances of finding employment have fallen
dramatically,” writes Tasci. “Lower job finding rates mean workers are
unemployed for longer durations, during which they can lose industry-
and job-specific skills.”

“This not only reduces workers’ odds of finding a job, but also
reduces their productivity when they finally do find employment,” he
says.

Tasci is anything but upbeat in his appraisal of the recovery and
prospects for job creation, seemingly reinforcing the FOMC’s oft-stated
belief that “substantial slack” in resource use will keep inflation
“subdued for some time.”

“The recession that began in December 2007 may have ended, but all
signs point to a prolonged recovery in the labor market,” he writes.
“Comparing this recession to those of the past reveals that it is more
like the previous two and less like earlier ones, suggesting that the
path of the recovery will be similar to the previous two as well — the
so-called jobless recoveries.”

“If recent patterns hold, the negative effects of this recession
are likely to linger a while in the labor market…,” he writes.

In the past three recessions, “workers stayed unemployed longer
once they lost their job” than in earlier recessions, Tasci writes,
adding, “This finding implies a troubling trend.”

“Longer unemployment spells are a problem not only because they
mean newly unemployed workers have a harder time finding jobs, but also
because workers who are unemployed for too long can lose industry- and
job-specific skills,” he explains. “Losing skills can reduce their odds
of finding a job during the recovery as well as lower their productivity
when they finally do find one.”

Tasci goes on to warn that “current measures of the demand for
workers by firms also suggest new jobs may be slow in coming.”

“The evidence there suggests that firms are more likely to begin
rebuilding their workforces by increasing the hours of workers who are
currently underemployed before they create many new jobs, reinforcing
the likelihood of a prolonged jobless recovery,” he writes.

** Market News International **

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