- The number of long-term unemployed Americans (those unemployed for 27 weeks or more) is rising.
- Unemployment over a long period of time can affect your long-term career growth, potential earnings, and mental health.
- You can begin mitigating these effects by confronting the stress and anxiety of long-term unemployment and taking control of your financial plan.
A year into the pandemic, a growing number of Americans are crossing the threshold into long-term unemployment.
Four million unemployed Americans (40% of total unemployed workers) have been out of work for at least 27 weeks, the marker of long-term unemployment, according to the Labor Department’s latest jobs report.
Even as COVID-19 cases decline and jobless claims (while still very high) slow, economic data point to a sluggish recovery ahead, with industries like hospitality and warehousing — already predicted to be among the last to return to normal — continuing to see high declines in available jobs, according to the Bureau of Labor Statistics.
While regular state unemployment programs provide up to 26 weeks of unemployment benefits, federal stimulus in response to the pandemic has temporarily extended benefits for unemployed workers who otherwise would have already exhausted them. But another unemployment cliff on March 14 again raises the stakes for Americans still struggling in a weakened economy, with more federal relief still under discussion.
Even with federal benefits extensions allowing unemployed workers to maintain some income, slipping into long-term unemployment can have long-term effects on your career, financial future, and mental health. “We’re looking at the real effects on people’s long-term income and wealth and health,” says Elizabeth Pancotti, a senior advisor at Employ America, a progressive labor policy group.
If you’ve sustained long-term job loss over the past year, you can begin taking action today to set yourself up for a lasting financial and emotional recovery.
The Risks of Long-Term Unemployment
The six-month mark of long-term unemployment is important because of the greater potential for lasting financial damage, experts say. After that point, workers are more likely to drop out of the workforce for good, data from Urban Institute show. And those who do become employed again tend to see diminished income for the rest of their careers.
“If you’ve been out of work for so long and you just need something, you might take a job where the wages are much lower than your previous job,” Pancotti says
How the Damage Goes Beyond Your Finances
The financial challenges caused by unemployment don’t just impact your wallet.
“It really takes a toll on the mental health of anyone who is trying to survive but at the same time is not able to make ends meet,” says Dr. Alex Melkumian, a licensed marriage and family therapist and founder of the Financial Psychology Center in Los Angeles.
When someone has a consistent income, even if it’s not as much as they would like, they’re able to plan their life and future accordingly. But there’s much more financial volatility in being unemployed — from day-to-day decisions to long-term planning — which can cause added stress and anxiety.
“Constantly living with the stress and uncertainty really wears you out and wears you down over a longer period of time,” Melkumian says. And without taking action, you may land in an even more dire financial situation later.
What You Can Do to Reduce the Stress
If you’re experiencing long-term unemployment, here are a few first steps Melkumian recommends to care for your mental health while protecting your financial future:
Get Real with Your Emotions
Start by confronting the real stressors you’re facing.
“When we’re experiencing financial stress, that really can mean a lot of different things,” Melkumian says. “It can indicate a lot of underlying emotions, like ‘I am afraid that I won’t make ends meet for the next month,’ or ‘I am resentful that my industry is failing due to COVID.’”
When you don’t appreciate or acknowledge the deeper reasons for your financial stress, it’s easier to fall into negative patterns of thinking that can keep you from taking action.
If you give up budgeting because it feels pointless when you don’t even have enough money to pay rent, for example, you may miss out on the benefits, like a better understanding of your spending or the discipline to plan ahead for next month.
“The fear and reaction distress becomes an avoidance tactic and demotivates us from taking action that we should be taking,” Melkumian says.
Make a Financial Plan
Once you’ve got an idea of the challenge you’re facing, create a spending plan. “It may not be a happy or fun conversation with yourself, but it’s one of necessity,” Melkumian says.
Get a grasp on how much money you have coming in each week, any supplemental income you rely on (an occasional side hustle, freelance projects), and one-time cash you know is coming (your tax refund, unclaimed stimulus payments via the Recovery Rebate Credit). Compare that to your necessary expenses — rent, groceries, transportation — and eliminate everything that’s not essential.
Make sure you’re taking advantage of any assistance and aid you qualify for, from unemployment insurance to forbearance programs, loan deferrals, and tax relief. Dip into any emergency savings you can. If necessary, consider tapping into retirement or other investment funds for extra cash — but know the consequences and cost you may incur.
Plot Your New Normal
Once you can identify and reduce the short-term stressors, it may also be useful to begin thinking about more lasting changes to your long-term plan.
“You have to figure out a way to live,” says Dan Herron, CPA, founder of Elemental Wealth Advisors in San Luis Obispo, California. Unemployment benefits can do a lot, he says, but they’re often not enough to live on. “If we don’t have recurring stimulus checks or other measures in place and there’s not enough money coming in the door, you’ve got to figure out what’s going to work.”
Even if you’ve already trimmed your budget, take a hard look at how you might further reduce your biggest expenses. For many people, that includes rent or mortgage. Can you downsize or move in with roommates? Is refinancing your home an option? Consider your transportation costs, too. Can you sell or trade in your car for a lower monthly payment? Is your auto insurance payment taking up a significant portion of your budget?
Herron recommends also looking for freelance work in your field, or even taking on a gig work via services like Uber Eats or Instacart. If you work in a badly hit industry, or you’re not entirely sure what you want to do in the future, you might also consider making a career change.
How Unemployment Insurance Helps
Some research shows extended federal benefits can help combat lasting financial effects of unemployment.
With more time to receive unemployment benefits, workers can get jobs better suited to their skills and experience, improving both job satisfaction and productivity long-term, according to recent analysis from VoxEU, the Center for Economic Policy Research’s policy portal. The analysts used data from benefits extensions made a decade ago during the Great Recession.
But when workers lose unemployment benefits, the “scarring” effects of unemployment — like lasting lower wages — may worsen, according to a 2014 study by the Economic Policy Institute.
“The primary economic damage that is larger for long spells of joblessness is the lower incomes that result from unemployment insurance benefits being cut off, which occurs roughly around six months in most states,” the study found.
Just how long additional federal unemployment benefits will extend during the current recession remains unknown, but further stimulus is already under debate in Congress. In the meantime, continue to recertify for unemployment insurance each week, contact your state’s unemployment office with issues, and follow up on any correspondence you do receive.
It’s OK to Ask for Help
While the financial benefits are clear, there’s a stigma of unemployment benefits that can take an emotional toll on claimants, Melkumian says. Many of his clients see relying on unemployment insurance as a “low point.”
“It speaks to a cultural narrative that we have,” he says. “Filing for unemployment is culturally looked upon as one of the most difficult and unwelcome things to do. It’s looked at as a last resort and means that you’re not really succeeding and doing well in life.”
But letting go of that self-judgment is important, he says. “If not now, then when can you ask for help?” he says. “It becomes a conversation of empowerment and encouragement.” Keeping that positive mindset can mean all the difference.
Where Do We Go from Here?
The struggle many unemployed Americans are facing today is unlike anything that we’ve seen before, Melkumian says. He even predicts that we’ll look back on some of the financial and emotional toll of the past year as inciting a traumatic response.
Emotional agility has helped many people stay resilient through these times — for some, the hardest they’ve experienced in their lifetimes, according to Melkumian. “That’s a skillset and a coping strategy that will pay dividends in the longer-term,” he says.
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