More jobs, but still not enough. Photographer: Spencer Platt/Getty Images
More jobs, but still not enough. Photographer: Spencer Platt/Getty Images

So far this year, the U.S. has made great progress in reducing long-term unemployment. Hopefully, the success won’t undermine proper efforts to resolve what remains a serious threat to the country's prosperity and social cohesion.

Long-term joblessness is a curse. It is a major contributor to poverty and the hollowing out of the middle class. The longer it persists, the harder it is to solve -- both because the long-term unemployed find it harder to get jobs and because the resulting erosion of productive capacity complicates the challenge of stimulating economic growth without fueling inflation and asset bubbles.

In a new analysis, economists at the Federal Reserve detail the gains that have been made in battling this scourge. Declining long-term unemployment accounted for an impressive 88 percent of the overall reduction in unemployment in the first half of 2014, making it the major driver of an improvement in labor market conditions that has significantly outpaced both private-sector expectations and the Fed’s own projections.

The share of the unemployed who have been out of work for more than six months now stands at 33 percent, down from the unprecedented 45 percent it reached in 2010. That's still a very high level, though: In previous recessions dating back to World War II, the share of long-term unemployed never exceeded 26 percent.

The gains have been driven largely by the Fed's stimulus policies, and by private companies’ success in restoring strong balance sheets and more dynamic operations. With the notable exception of President Barack Obama's initiative to encourage more hiring of long-term unemployed, the government has contributed little.

Unfortunately, rather than encouraging politicians to jump on the bandwagon and finish the job, the progress is likely to deepen divisions. Some will argue that Congress’s refusal to extend benefits for the long-term unemployed has forced people to get jobs. Others will point to the relaxation in budgetary austerity as the main driver. The debate is complicated by uncertainty over how much more can be done to get people back to work at a time when the labor participation rate is fluctuating near multidecade lows and workers' skills might not match the available jobs.

Understanding how much more progress can be made without endangering both price and financial stability is also crucial for the Fed and for financial markets. In their analysis, the Fed economists have made an important contribution. More must be done if the U.S. is to overcome a problem critical to the well-being of both current and future generations.

To contact the writer of this article: Mohamed A. El-Erian at M.El-Erian@bloomberg.net.

To contact the editor responsible for this article: Mark Whitehouse at mwhitehouse1@bloomberg.net.