The secret of rising long-term unemployment

The American labor market remains strong in all respects and, in our opinion, is at full employment.

The numbers show resilience. The unemployment rate has been between 3.4% and 4.3% over the past two years. The average duration of unemployment is 10 weeks, with initial applications for unemployment assistance remaining constant at 200,000 to 225,000 and the number of ongoing applications at around 1.9 million.

But behind this encouraging data lies a mystery: long-term unemployment of more than 27 weeks is increasing.

By October, 22.9% or 1.6 million people experienced long-term periods of unemployment. This is an increase from the cyclical low of 1.07 million in January 2023.

Historically, long-term unemployment has been a result of a skills gap between what companies need and what workers can provide, individual challenges such as addiction, the effects of globalization and various forms of discrimination.

But these factors may not fully explain what is going on. We have consistently argued that we do not fully understand the employment dynamics in today’s economy.

In fact, rising long-term unemployment is one of many puzzles that require further attention.

Read more about RSM’s insights into the economy and the middle class.

The 800-pound gorilla in the room, of course, is the impact of technology on the future of the American job market.

Although it is still too early to attribute longer-term unemployment to the adoption of technologies such as artificial intelligence, it is not too early to think about what AI will mean for workers in the future.

When integrating AI into the economy, it is critical that it is done in a human-centered way that aims to create the conditions for shared prosperity.