The substantial increase in long-term unemployment is likely due to cyclical factors rather than structural changes in the economy, Federal Reserve Chairman Ben Bernanke told a meeting of business economists in Washington, D.C.

And despite recent improvements in the economy, he said, the job market remains "far from normal," with unemployment "well above what most economists judge to be its long-run sustainable level."

Long-term unemployment (lasting longer than six months) has represented 40% or more of unemployed Americans since December 2009, Bernanke noted. That compares to 25% or less during the severe 1981-1982 recession.

Effects from long-term unemployment include sharp declines in earnings that may last for years, withdrawals from savings and retirement accounts and increases in stress-related health problems such as depression, stroke and heart disease, Bernanke noted.

The Federal Reserve chairman also pointed out that people unemployed for a long time "have historically found jobs less easily than those experiencing shorter spells of unemployment, perhaps because their skills erode, they lose relationships within the workforce or they acquire a stigma that deters firms from hiring them."

This can reduce the economy's "overall productive capacity over the longer term," he said.

While some believe that this prolonged unemployment could be due to structural problems such as inadequate skills or mismatches between workers' skills and the jobs that are available, Bernanke said structural shifts only account for a "modest portion" of the increase in long-term unemployment.

He noted, for example, that the ability of the recently unemployed and the long-term unemployed to find jobs occurred at about the same rate.

Also, he pointed out that labor demand in most industries and locations is weak, indicating more a lack of demand than a "worsening mismatch of skills and jobs."

Unemployment Down, Hours Worked Increase

Private employers have increased payrolls by nearly 250,000 jobs per month in the three months ending in February, and by an average of about 190,000 jobs per month over the past year, Bernanke noted.

Layoffs in the public sector also appear to be moderating, he said, and the average workweek has lengthened.

The increase in hours worked is "encouraging," Bernanke said, because of the sharp drop in hours during the recession. Aggregate hours on the job by production workers fell 9.5% from December 2007 to February 2010, while they fell 5.75% during the 1981-82 recession.

Bernanke observed that the unemployment rate dropped to 8.3% in February and that other indicators such as business hiring plans, new claims for unemployment insurance and measures of the breadth of hiring across industries all point to an improved labor market.

But he cautioned that the job market remains "quite weak," with employment in the private sector still more than 5 million jobs below its previous peak. He pointed out that much of the improvement in the labor market has come from a decline in layoffs rather than an increase in hiring.

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