From Christopher Swann from Reuters: The danger of a lost generation
NEW YORK, July 24 (Reuters) - For the first time in three generations, Americans across the nation are facing the threat of long-term unemployment. Already more than one in four jobless Americans have now been out of work for more than six months, the highest level since records began in 1948.
For both individuals and national economies, long-term joblessness has proved to be extremely corrosive. Skills atrophy after extended periods of enforced indolence. Then, when an economy recovers, these workers are no longer in a position to fill new jobs.
As a result the potential maximum speed at which the economy can grow declines, and the workers themselves come to be seen as “damaged goods.” Those unlucky enough to be graduating in 2009 may find that their salaries never match those of similarly qualified peers who finished in 2006.
A multitude of academic papers suggest that an early bout of long-term unemployment can have an even more pernicious result. According to a recent study by Tom Mroz at Clemson University, a six-month spell of unemployment at the age of 22 tended to reduce wages the following year by eight percent.
More worryingly, almost 10 years later these workers were still paid about three percent less than their peers, even controlling for education, region and personal characteristics. Other studies have shown an even more powerful hit, with wages still about 10 percent lower five years after the initial period of joblessness.
“Youth unemployment creates permanent scars rather than temporary blemishes,” says Dartmouth Professor David Blanchflower. An unfortunately timed demographic bulge means that there will be an unusually large number finishing school over coming years. For more experienced workers, there is a risk of permanent displacement from the labor force. This risk is especially great for workers in financial services — an industry that is unlikely to grow back to its peak size any time soon.