Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping Long-Term Unemployment Costs
Transcript
- Lucas: So the May jobs report drops Friday, and one number I'm watching isn't the payroll headline. It's the long-term unemployed. The share of people out of work for 27 weeks or more has been creeping up for months. Luna: Yeah, I saw that CNBC piece about the hidden costs. And the latest initial jobless claims came in at 225,000 — up a bit from 212,000 the week before. That's not a crash, but it's a direction. Lucas: Right. The unemployment rate itself has been stuck at 4.3 percent since April. That's low by historical standards. But beneath that surface, the composition is shifting. More of the unemployed are staying unemployed longer. Luna: Which in a stagflation context — high inflation, slow growth — is especially nasty. Because the usual cure for unemployment is growth, but we're growing at what, 1.6 percent annualized real GDP? Lucas: Exactly. And inflation is still running hot. Core CPI hit 335.4 in April, up from 334.17. So the Fed can't cut rates to stimulate hiring without reigniting price pressures. That's the classic stagflation trap. Luna: So what's driving this long-term unemployment surge? Is it a structural thing — skills mismatch, automation — or just a lagging indicator from the last slowdown? Lucas: I think it's a bit of both. Look at the JOLTS data. Job openings actually ticked up to 7.6 million in April from 6.9 million. So there are jobs out there. But the long-term unemployed may not be matching up with them. Luna: Right — the skills gap. If you've been out of work for six months, your industry might have moved on. Especially in tech or manufacturing, where the tools and processes change fast. Lucas: That's the structural piece. But there's also a demand-side issue. Even with openings, employers in a stagflation environment are cautious. They'd rather keep headcount lean and squeeze more from existing staff than take a risk on someone who's been idle. Luna: And that creates a vicious cycle. The longer you're out, the harder it is to get back in. Your skills atrophy, your network shrinks, and employers start filtering you out based on that resume gap. Lucas: There's research from the 1970s — the last real stagflation decade — showing that long-term unemployment had permanent scarring effects on workers' future earnings. Even after the economy recovered, those workers never fully caught up. Luna: So what's different this time? Because we've got some structural buffers that didn't exist in the 70s — unemployment insurance is more generous, the Gig economy offers stopgap income, remote work expands the job search radius. Lucas: All true. But those buffers can also mask the problem. If someone is driving for Uber and doing a few freelance gigs, they're not counted as unemployed. But they're underemployed, earning less, and their skills may still be decaying. Luna: And that shows up in consumer spending patterns — which connects to the stagflation theme. Underemployed people spend less, save less, and are more vulnerable to inflation shocks. Especially on essentials like rent and food. Lucas: That's the macroeconomic feedback loop the Fed worries about. If long-term unemployment keeps rising, it drags down aggregate demand, which makes growth even slower, which makes inflation stickier — because you've got supply constraints but not enough demand to justify investment. Luna: And in the meantime, the headline unemployment rate looks fine. 4.3 percent. Politically, that's a win. But the underneath tells a different story. Lucas: That's why I think the Friday jobs report is more than just a number. If we see another uptick in the long-term unemployed share — even if payrolls are decent — it's a signal that the labor market is becoming two-tiered. Luna: Speaking of two-tiered, this episode is actually a good moment to mention something. If walking through the economy with us has helped you connect dots — we keep this show ad-free, and listener support is what makes that possible. People can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small way to keep the conversation going without commercial breaks. Appreciate anyone who does. Now, back to that structural mismatch — I want to unpack one specific industry where long-term unemployment is hitting especially hard. Luna: Which one? Lucas: Manufacturing. We saw a wave of reshoring announcements over the past few years, but the actual hiring has been slow. Partly because the skills required for modern manufacturing — robotics, CNC programming, supply chain software — aren't the same ones the laid-off workers have. Luna: So you've got open jobs in manufacturing, but they're in different locations or require different training. Meanwhile, the workers who lost jobs in the last downturn are still sitting on the sidelines. Lucas: Exactly. And retraining programs take time. There's a program in Michigan called 'ReSkilled' that's trying to bridge that gap — they've placed about 1,200 workers over two years. But the scale of the problem is much larger. Luna: And in a stagflation environment, companies are less willing to invest in training. They want someone who can start on day one. So the long-term unemployed become an even harder sell. Lucas: That's the tragedy of it. The economy needs these workers back, but the very conditions that created the slack — slow growth, high inflation — also discourage the investment that would re-employ them. Luna: So what's the policy lever? The Fed can't do much. Fiscal stimulus is off the table because of inflation fears. Is it just structural reform in education and training? Lucas: I think that's part of it. But there's also a role for targeted wage subsidies or employer tax credits for hiring the long-term unemployed. A few states are experimenting with that. The data from those pilots will be interesting. Luna: And in the meantime, the human cost is real. The hidden costs mentioned in that CNBC piece — mental health, family stability, wealth erosion — those compound over time. Lucas: That's why I think the long-term unemployment number is one of the most important metrics to watch in this stagflation cycle. It's not just a statistic. It's a measure of how deeply the economic pain is penetrating. Luna: Agreed. Friday's report will give us a clearer picture. Let's see if the trend continues.