Three main factors account for the trend in long-term unemployment: the degree and pace of technological change, which has drastically transformed the way that work is structured; the widening economic competition in the world economy, including the ability of manufacturing capacity to be transferred to low-wage countries; and the prevailing recessionary economic cycle, which or may not be prove to be of long duration.
Excessively long periods of unemployment feed on themselves and produce what the OECD calls the "long-term unemployment trap". Technological change is now so rapid that the long-term unemployed quickly become virtually unemployable. Aside from the calculable economic effects of prolonged joblessness, are potential emotional and physical reactions which may threaten an individual's personal and social existence. All unemployed people may face psychological difficulties, but those who are jobless for a prolonged period of time (approximately over 12 months) often become entangled in demoralization and demotivation, further disabling them in their search for employment and fulfilment. As a job is often a source of personal identity, pride or camaraderie, prolonged unemployment forces an individual to compensate for the lack of those securities and sources of self-esteem. This challenge is often difficult and sometimes unfeasible. Anxiety, depression and neurotic disorders are all increased by unemployment, as are separation, divorce and violence. The perils of joblessness are suffered not only by the individual; the family of the unemployed faces an increase of mental and physical health problems as well.
According to a 1993 study, individuals who are out of work for more than a year are four times less likely to find a job than the recently unemployed. During an economic recession, these figures are particularly crippling to the national psyche. Periods of economic recession marked by high rates of long-term unemployment and reduced per capita income have long been linked to an increase in personal and social ills. A university sociologist from New York found that during and after recessions in the 1970's and 1980's there was a significant rise in heart disease, stroke, cirrhosis of the liver, suicide, traffic accidents, homicides, admissions to mental hospitals, arrests and cases of assault and fraud.
In 1991 in the USA, 1.3 million people were designated as long-term unemployed, meaning that they had been out of work for six months or longer. In 1994, the figure was estimated to be 1.7 million. In 1992, there were almost one million people who had been unemployed for over one year, around one-third of the UK's unemployed. Almost half (45.8%) of the unemployed people in Europe in 1993 had been out of work for more than one year. The OECD considered Europe's welfare states to be particularly liable to the "long-term unemployment trap" because of the generous unemployment compensation system; in 1993, for example, German unemployment insurance paid 80% of normal wages. The EEC/EU has a much larger percentage of long-term unemployed than the USA partly because rule on hiring and firing are much stricter and act as a disincentive for enterprises to take on workers as quickly as elsewhere. In 1994 some predicted that Europe was faced with a permanent high level of unemployment which was unlikely to decline much below 10% before the year 2000.
The corrosive effects of long-term unemployment suck whole families into a vicious cycle of lengthening joblessness, depression and alienation. The risk grows that the long-term unemployed will become a marginal and "abnormal" group. The movement of the young unemployed in this direction is worrying because it may lead to the formation of values at variance with society and incompatible with working life. Large changes in housing, courtship and family formation do seem to be taking place among these young people and in ways likely to cement dependent status of themselves and their children.
Endemic unemployment blights everyone, with and without work. Those with work are ultimately affected by the slowing growth rate caused by the sheer waste of people, their incomes, spending and skills. The longer the unemployed are idle, the harder it is for them to become employable again. The economy then starts to respond to the underperformance with a whole set of self-reinforcing low expectations of growth, investment and employment, leading to a high unemployment equilibrium. Those in work find promotion harder to secure and become wary of taking any risk, notably in their pattern of spending.