The High Take-Up Rate for Unemployment Insurance Signals that Hiring is Weak

The U.S. Department of Labor released the 23rd weekly report of new unemployment insurance claims for 2012.  About 374,000 workers per week, on average, applied for first-time unemployment insurance in 2012.  Bureau of Labor Statistics data also indicate that about 392,000 workers lost their jobs each week due to layoffs in the first quarter of 2012.  These are the workers for whom the unemployment insurance system can provide some relief.  Unfortunately the economy continues to plod along so that 95% of job losers file for unemployment benefits.  This is a clear indication that even experienced workers are struggling to find work.

Five years ago, when the labor market was relatively healthy, about 404,000 workers were laid off each week, but only 314,000 applied for unemployment benefits.  Many of the remaining 90,000 job losers either found a job immediately or expected to find one soon.  In a healthy labor market, as we had in 2007, over 20% of job losers didn’t bother to apply for jobless benefits because they did not expect to be out of work for long.

If today’s labor market was as healthy as in 2007, new jobless claims would be 305,000 per week – almost 70,000 less than the average for 2012.  The high “take-up” rate (95%) for the unemployment insurance system is just one indication of the problem that jobless workers face.  New college or high school graduates are typically ineligible for unemployment benefits but are also struggling to find work.  In addition, there are millions of discouraged workers who have stopped searching for work because of the weak economy.

Conventional wisdom suggests that when new jobless claims fall below 400,000 per week the unemployment rate will decline.  That is no longer true because hiring and new business formation remain sluggish and there are millions of discouraged workers that will re-enter the labor force at the first signs of a recovery in hiring.  The unemployment rate will not fall below 8% until there is a substantial increase in hiring.  A leading indicator for a hiring rebound is when new jobless claims stay well below 350,000 per week for a sustained period.

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