Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / Why Stagflation Is Creating a Two-Tier Job Market
Transcript
- Lucas: So we talk a lot about the headline unemployment rate being stuck at 4.3 percent — flat for months now. But there's a quieter story inside that number that's getting worse, not better. Luna: You're talking about the long-term unemployed — people out of work for six months or more. Lucas: Exactly. The May jobs report comes out Friday, but the JOLTS data for April — released last week — showed something interesting. Job openings jumped to 7.6 million, up from 6.9 million in March. That's a real pickup. Luna: Right, so more openings should mean easier hiring. But you're saying it's not playing out that way for everyone. Lucas: Not at all. The long-term unemployed count has been rising steadily. In April, about 1.8 million workers had been jobless for 27 weeks or more. That's up roughly 15 percent from a year ago. And their share of total unemployment is now above 22 percent — highest since the early 2010s. Luna: So employers are filling those 7.6 million openings, but they're picking freshly unemployed workers over people with gaps on their resumes. Lucas: That's exactly the pattern. And it's a classic stagflation dynamic. When growth is slow and inflation is sticky, employers get more risk-averse. They'd rather pay a small premium for a candidate who's been out of work for four weeks than take a chance on someone who's been searching for eight months. Luna: There's a stigma problem too. A study out of the Boston Fed a few years back showed that callback rates for long-term unemployed workers were about 45 percent lower than for short-term unemployed, even with identical resumes. Lucas: And that gap widens in a slow-growth environment. So you get this two-tier labor market: one group cycles through jobs quickly, keeps their skills fresh, maintains bargaining power. The other group falls further behind the longer they're out. Luna: It's almost like the unemployment rate itself becomes a misleading signal. The headline says 'stable,' but underneath, the composition is shifting in a way that's bad for workers and bad for long-run productivity. Lucas: Right. And there's a 1970s parallel here. During the stagflation of the late 70s — from around 1975 to 1980 — the long-term unemployed share hit levels above 15 percent for several years. It didn't come down until the early 80s recession actually cleared the decks, which is a grim thought. Luna: You mean it took a deeper downturn to reset the labor market? Lucas: That's what happened. The 1980 recession pushed unemployment above 7 percent, but once it ended, the long-term share dropped much faster than it had during the stagflation years. Because employers had new workers to choose from — people laid off during the recession — and the old long-term unemployed got pushed even further out of the pool. Luna: So the cure was worse than the disease. That's not a great precedent. Lucas: It's not. And today we have an additional wrinkle. Average hourly earnings are up to $37.50 — that's about 2.4 percent year-over-year. But with CPI running above 3 percent, real wages are still falling. So workers who do get hired are losing purchasing power. Luna: That hits the long-term unemployed harder. They've already drained savings, maybe taken on debt. By the time they land a job, the paycheck buys less than it would have a year ago. Lucas: And there's a structural risk here too. Skills erosion is real. Someone who's been out of a data-heavy role for eight months loses familiarity with tools, workflows, industry jargon. That makes them less attractive to employers, which extends their unemployment, which erodes more skills. It's a vicious cycle. Luna: Which is why some economists argue that we should be measuring 'underemployment' or 'labor underutilization' — the U-6 rate — more closely. That number includes discouraged workers and people working part-time who want full-time work. Lucas: The U-6 for April was around 7.8 percent. That's down a bit from last year, but it's still elevated relative to the headline. And it's especially high for workers without a college degree — above 11 percent. Luna: So the pain is concentrated. It's not evenly distributed across the labor force. Lucas: It never is in stagflation. The sectors that get hit hardest are the ones with thinner margins and less pricing power — retail, hospitality, temporary staffing. Those are also the sectors where workers have the least bargaining power to begin with. Luna: I want to come back to something you mentioned earlier — the idea that employers are willing to pay a premium for short-term unemployed workers. Does that show up in wage data? Lucas: It does, indirectly. The wage growth we're seeing — that 2.4 percent year-over-year — is concentrated among job switchers, not stayers. People who move from one job to another are getting bigger raises than people who stay put. But the long-term unemployed aren't even in that switcher pool. They're starting from a lower base. Luna: So the gap between the 'haves' and 'have-nots' in the labor market is widening, even as the overall numbers look okay. Lucas: That's the two-tier dynamic. And it's one reason why, even with 7.6 million job openings, you still hear stories of people sending out hundreds of applications with no response. The openings are real, but they're not evenly accessible. Luna: What about policy responses? Are there any targeted programs for the long-term unemployed right now? Lucas: Not really. The federal extended benefit programs expired years ago. Some states have work-sharing programs, but they're small. There's no large-scale retraining initiative tied to the current stagflation environment. Congress is focused on tariffs and geopolitical stuff. Luna: And the Fed isn't going to step in. Their mandate is price stability and maximum employment, but they've made clear they're prioritizing inflation right now. Lucas: Right. The Fed looks at the headline unemployment rate and sees 4.3 percent — that's below their long-run estimate. So they don't see a labor market emergency. But the composition tells a different story. Luna: It's almost like we need a different dashboard. Not just the unemployment rate, but something like the 'long-term unemployed share' as a regular headline. Lucas: I like that. Maybe a 'labor market health index' that weights long-term unemployment more heavily. If you built one, it would probably be flashing yellow right now. Luna: Speaking of things that don't get enough attention — it's funny, we spend all this time digging into data like this, and we don't run a single ad. That's a choice we've made from the start. Lucas: It is. We'd rather keep the show focused and independent. If you find value in these conversations, the simplest way to support that is buy me a coffee dot com slash fexingo. No pressure, no perks — just helps us keep the lights on and the data subscriptions paid. Luna: Exactly. And we really mean no pressure. Now, back to that labor market dashboard idea — if we were to build one, what would you include besides the long-term share? Lucas: I'd include the share of part-time workers who want full-time hours, the prime-age employment to population ratio, and maybe the quit rate. The quit rate has actually been falling — it's back to pre-pandemic levels, around 2.1 percent. That tells you workers don't feel confident enough to leave their current jobs. Luna: So the 'great resignation' is officially over. We're in the 'big stay' phase now. Lucas: Exactly. And that's another feature of stagflation. When real wages are falling but you're not sure you can find another job, you stay put. That suppresses wage growth overall, because workers aren't bidding each other up. Luna: It's a self-reinforcing cycle. Stagnation breeds caution, caution breeds more stagnation. Lucas: And the people who get caught in the middle are the long-term unemployed. They're the canary in the coal mine for the broader labor market. If we start seeing their numbers rise more sharply, that's a signal that the two-tier dynamic is getting worse. Luna: We'll be watching Friday's jobs report closely for that. Thanks, Lucas. Lucas: Thanks, Luna. And to our listeners — keep an eye on the long-term unemployed share. It tells you more than the headline rate does.