Millions of Americans Risk Exclusion From The Job Market Forever

The Organisation for Economic Co-operation and Development said today that millions of Americans risk falling out of the US job market forever, as it cautioned a full recovery will take years.

Americans hold up 'I want to work' placards as they join a protest of several thousand people demanding jobs outside City Hall in Los Angeles on August 13, 2010. A Labor Department report showed 131,000 jobs were lost in July and the unemployment rate remained stuck at 9.5 percent. Photo: Flickr

This recession has left the US with a long-term unemployment rate – a measure of those without work for more than six months – of 4.5pc, almost double that seen in the downturns of the 1980s and 1990s.

“Previous US recessions have exhibited no long-term damage to the economy or long-term increase in unemployment, but it is possible this recession will trigger these effects,” the OECD said in its first survey of the economy since late 2008.

The wide-ranging analysis also urged the US to consider a Value Added Tax to tackle its deficit, to radically reshape its housing policy and for the Federal Reserve to begin withdrawing the stimulus that has cushioned the economy in the past two years.

A more urgent priority, the OECD says, is for President Obama to marshall support across the capital for measures, including tax incentives for companies to hire and retraining programmes, to help ease the growing crisis in the labour market.

But failure of the now slowing recovery to drive unemployment much below 10pc has split the parties in the run-up to the Congressional elections in November, making it far less likely Republicans will back any measures and stirring support for the Tea Party, a growing force and highly sceptical of any new stimulus.

Although arguing that interest rates should remain at their current band of between 0pc and 0.25pc, the report argues that the Fed must start taking away some of the props it’s handed the economy and the banks.

“Since the movement of interest rates from extremely expansionary levels to neutral levels and the gradual shrinkage of the Federal Reserve’s balance sheet will take some time, initial increases need to begin well before the economy once again approaches full capacity,” the report said.

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