Key Takeaways:
The U.S. labor market looks healthy by headline measures, but nearly 2 million workers have been locked out of jobs for six months or longer — a share of total unemployment not seen since late 2021.
The long-term unemployed — people out of work for 27 weeks or more, the longest period tracked by the Labor Department — accounted for 27.3% of all jobless Americans in June, up 4 percentage points from a year earlier. That is hovering near the highest level since the labor market was recovering from the Covid shock, according to data released July 2.
"The commentary surrounding the June jobs report was much too dismissive of how weak the numbers looked," said Mark Zandi, chief economist at Moody's Analytics, in a series of posts on X. He noted that payroll employment posted only a modest gain in June, prior months' gains were revised lower, and most hiring came from healthcare rather than being broadly distributed across the economy.
The overall unemployment rate drifted down to 4.2% in June, and the economy has added jobs for four straight months — an improvement from the very weak 2025. But hiring as a share of employment has barely budged in two years, leaving the labor market stuck in a low-hire, low-fire pattern. Zandi pointed out that the decline in the unemployment rate was misleading because it coincided with a sharp drop in labor force participation, which he described as being "in free-fall" across most demographic groups, especially among workers under 35. His "vicious-cycle measure," which adjusts unemployment for trend labor force participation, rose above 5% in June.
White-Collar Workers Bear the Brunt
Federal data show long-term unemployment hitting people most heavily in their prime working years, between 25 and 54. Within this group, workers from their mid-20s to mid-30s represent both the highest number of overall jobless people and, at 27%, the highest portion of the long-term unemployed.
The jobless drought is concentrated in white-collar sectors. More than a third of unemployed people in professional services have been out of work for six months or more, government data show. Other fields with elevated long-term jobless rates include government workers — a group hit by federal cuts — as well as finance and information technology.
"If you become unemployed, hires are very low right now, so it's hard to get a job especially in certain white-collar sectors where we haven't seen a lot of growth," said Laura Ullrich, director of economic research at jobs site Indeed. She said the situation is unlikely to change until the hires rate picks up.
The six-month mark is when many job seekers lose severance or unemployment benefits, and the consequences can cascade. Studies show that for young workers, missing a vital period of career attainment and network-building can depress earnings for years. For older workers, prolonged unemployment often leads to accepting lower-paying roles.
"People start to struggle to get back on their feet and they start taking lower-paying jobs," said Alfredo Romero, chair of economics at North Carolina A&T State University. "That usually puts that group of people into a lower rung of the income distribution."
Hiring Drought, Not a Layoff Surge
What makes the current cycle unusual is the absence of a spike in layoffs. The number of short-term unemployed has remained well behaved, economists say. Instead, the problem is persistently weak hiring demand.
"The situation over the past couple of years has been really unique in the sense that we haven't had this spike in layoffs," said Preston Mui, senior economist at Employ America. "But we did have a pretty marked decline in hiring."
Many firms have announced plans to cut management layers after a hiring binge following the pandemic, while some companies have cited artificial intelligence investments in announcing high-profile layoffs. The impact of AI on the job market remains a major question mark, though it has already contributed to a cautious hiring environment in sectors like technology and media.
For workers like Norig Karakashian, a 38-year-old accountant in Glendale, California, who has been looking for a job for a year and a half, the experience has been demoralizing. "I go through lots of screening calls and they go nowhere," he said. He is now considering switching to a different career entirely, such as locksmith or watchmaker.
The persistence of long-term unemployment at elevated levels poses a structural risk to the economy. While the overall low unemployment rate limits the macro impact for now, the longer workers remain on the sidelines, the harder it becomes for them to re-enter the labor force — a dynamic that could weigh on consumer spending and labor force participation in the quarters ahead.
This article is for informational purposes only and does not constitute investment advice.
