Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping Long-Term Unemployment Costs
Transcript
- Lucas: Luna, the May jobs report drops Friday, and the previews are all about the headline number — did we add 180,000 or 200,000 jobs. But there's a quieter number in the background that I think tells a more worrying story for this stagflationary moment. Luna: Which number? The unemployment rate's been stuck at 4.3 percent for months now. Lucas: Right, that's part of it. But I'm looking at the composition of the unemployed. Initial jobless claims just jumped to 225,000 — that's up from 212,000 the week before. And there's been a steady rise in the number of people who've been out of work for more than six months. The long-term unemployed. Luna: That's the group that tends to get left behind in the recovery. Once you've been out that long, employers start to see a gap as a red flag. Lucas: Exactly. And in this environment — where inflation is still running hot around 3.3 percent on core CPI, and real GDP growth is barely at 1.6 percent annualized — the labor market is odd. Job openings actually rose to 7.6 million in the JOLTS report, up from 6.9 million. So there are jobs out there. But employers are being picky. Luna: They want someone who can start tomorrow, with skills that haven't atrophied. So the long-term unemployed get screened out early, even if they'd be perfectly capable. Lucas: And the hidden cost here is enormous. Every month of long-term unemployment doesn't just hurt the worker — it shifts costs onto state unemployment insurance systems, which are already strained by inflation. Plus, local social services see more demand for food assistance and housing aid. Luna: There's also the long-term damage to the worker's earnings potential. Studies from past recessions show that after a six-month spell, people earn significantly less for years, even after they find a new job. Lucas: Right. The 'scarring effect.' And in a stagflation scenario — slow growth, high prices — that scar lasts longer because the economy isn't generating enough new opportunities to absorb these workers quickly. We're seeing echoes of the 1970s, when long-term unemployment stayed elevated for years after the initial shock. Luna: So what's the exit ramp? More training programs? Or do we just have to wait for growth to pick up? Lucas: That's the hard part. Training programs help, but they take time and funding — and state budgets are tight because of inflation. The Federal Reserve can't cut rates aggressively with inflation still above target. So we're in this waiting game where the long-term unemployed are the ones bearing the brunt. Luna: And the irony is that employers complain about labor shortages while ignoring this pool of workers. There's a mismatch, but it's not just skills — it's hiring bias. Lucas: Yeah, the 'duration bias.' Some companies even auto-filter resumes with gaps over six months. That's a structural barrier that won't fix itself. Luna: So this is one of those quiet costs that doesn't make the front page of the jobs report, but it eats away at the economy's resilience. Lucas: Absolutely. And if walking through the economy with us has made something click for you, honestly, if today's episode was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Keeps us ad-free and digging into these hidden corners. Luna: Yeah, listener support is what lets us spend time on the numbers that don't get the headlines. Appreciate anyone who chips in. Lucas: So back to that scarring effect — the data from the 1970s shows that the long-term unemployed in that era had persistently lower labor force participation even a decade later. We're not there yet, but the early signals are worth watching. Luna: What would you look for in the Friday jobs report to gauge whether this is getting worse? Lucas: I'll be watching the duration of unemployment — specifically the share of unemployed who've been out for 27 weeks or more. If that ticks up even slightly, it's a sign that the labor market is becoming less fluid. Luna: And if initial claims keep rising, that adds more people to the pool who could become long-term. Lucas: Right. The ADP report this week showed private payrolls grew by 122,000 in May — that's stronger than expected, so the headline might look okay. But the churn underneath is concerning. People are leaving jobs, but not all of them are landing quickly. Luna: There's also the tariff news — the U.S. proposing new tariffs on 60 economies over forced labor practices. That could disrupt supply chains and slow hiring even more. Lucas: Good point. Trade policy uncertainty tends to make employers cautious about adding headcount, especially for roles that aren't urgent. That feeds straight into longer unemployment durations. Luna: So we've got inflation, slow growth, trade tensions, and a labor market that's tighter in some ways but leaving people behind in others. It's a classic stagflation cocktail. Lucas: And the long-term unemployed are the ones who get trapped in the hangover. The hidden cost isn't just a line item in a budget — it's real people whose careers and lives get derailed. Luna: Which makes it worth paying attention to, even if it's not the big headline. Lucas: Exactly. We'll be watching Friday's numbers, and we'll circle back on this in a future episode if the trend continues.