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Long-term unemployment in America falls when employment growth increases

A few weeks ago, I updated my research on the way employment growth accesses the different unemployment duration pools using Australian data. In that blog post (October 19, 2020) – The long-term unemployed are not an inflation constraint in a recovery – I showed that the claim that the long-term unemployed constitute an inflation constraint because employers will not choose to offer them jobs due to perceived scarring is a popular neoliberal assertion but has no basis in the actual data. The orthodox economists use that assertion to justify microeconomic (supply-side) policies (training, activation, etc) rather than direct job creation. The reality is that when employment growth is strong enough, both short-run and long-run pools of the unemployed are accessed by employers. In the latter case, employers alter hiring standards and offer on-the-job training to ensure they do not lose market share. I have received several E-mails stating that the US is different and the long-term unemployed are shunned by employers, which means that trying to stimulate the economy will hit the inflation constraint sooner than if there was a Job Guarantee in place. Logically, there is no reason the US labour market operates differently in any fundamental way to the Australian labour market so I decided to examine the validity of the ‘irreversibility hypothesis’ using US data. Guess what? The hypothesis doesn’t hold up in the US either.

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