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- The number of long-term unemployed Americans (those who have been unemployed for 27 weeks or more) is increasing.
- Long-term unemployment can affect your long-term career growth, income potential, and mental health.
- You can begin to mitigate these effects by dealing with the stress and anxiety of long-term unemployment and by taking control of your financial plan.
A year after the start of the pandemic, a growing number of Americans are crossing the threshold of long-term unemployment.
More than 4 million unemployed Americans (41.5% of the total unemployed) have been out of work for at least 27 weeks, the marker of long-term unemployment, according to Latest job report from the Ministry of Labor.
Even as COVID-19 cases decline and unemployment claims always very high) slow, economic data points to a slow recovery to come, with sectors like hospitality and warehousing – already planned among the last to return to normal – continues to see a sharp drop in available jobs, according to the Bureau of Labor Statistics.
While the state’s regular unemployment programs up to 26 weeks unemployment benefits, the federal stimulus in response to the pandemic has temporarily extended benefits for the unemployed who otherwise would have already exhausted them. But another cliff of unemployment on March 14 again raises the stakes for Americans still struggling in a weakened economy, with more federal relief still under discussion.
Even with extensions of federal benefits allowing the unemployed to retain some income, falling 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, wealth and health,” says Elizabeth pancotti, senior advisor at Employ America, a progressive labor policy group.
If you’ve experienced long-term job loss in the past year, you can start taking action today to prepare for lasting financial and emotional recovery.
The risks of long-term unemployment
The six-month mark of long-term unemployment is significant because of the greater potential for lasting financial damage, experts say. After this point, workers are more likely to drop out of the labor market for good, data shows Urban Institute show. And those who return to work tend to see their earnings decline for the rest of their careers.
“If you’ve been out of work for so long and 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 damages the sanity of anyone who tries to survive but can’t make ends meet,” says Dr Alex Melkumian, licensed marriage and family therapist and founder of the Financial Psychology Center in Los Angeles.
When a person has a constant income, even if it is not as much as they would like, they are able to plan their life and their future accordingly. But there is a lot more financial volatility in being unemployed – from day-to-day decisions to long-term planning – which can lead to stress and anxiety.
“Constantly living with stress and uncertainty is really draining you and draining you over a longer period of time,” says Melkumian. And without taking action, you risk ending up in an even more dire financial situation down the road.
What you can do to reduce stress
If you’re struggling with long-term unemployment, here are some first steps Melkumian recommends to take care of your mental health while protecting your financial future:
Be realistic with your emotions
Start by dealing with the real stressors you face.
“When we’re faced with financial stress, it can really mean a lot of different things,” says Melkumian. “It can indicate a lot of underlying emotions, like ‘I’m afraid I won’t make ends meet next month’ or ‘I’m upset that my industry is failing because of COVID.'”
When you don’t appreciate or acknowledge the root reasons for your financial stress, it’s easier to fall into negative thought patterns that can prevent you from taking action.
If you give up budgeting because it seems pointless when you don’t even have enough money to pay rent, for example, you might miss out on perks like a better understanding of your expenses or the discipline to plan ahead for the month next.
“Fear and reaction distress becomes an avoidance tactic and demotivates us to take the actions we should be taking,” says Melkumian.
Make a financial plan
Once you have an idea of the challenge you are facing, create a spending plan. “It might not be a happy or fun conversation with yourself, but it is a necessity,” says Melkumian.
Get an idea of how much money you get each week, any additional income you rely on (a jostling side, independent projects) and one-time money that you know is coming (your tax refund, unclaimed stimulus payments through the Recovery rebate credit). Compare that to your necessary expenses – rent, groceries, transportation – and cut out anything that isn’t essential.
Make sure you take advantage of whatever help and help you qualify for, from unemployment insurance and forbearance programs, to loan deferrals and tax breaks. Dive into all the emergency savings you can. If necessary, consider tap into retirement or other investment funds for additional liquidity – but know the consequences and cost you might incur.
Draw your new normal
Once you can identify and reduce short-term stressors, it can also help to start thinking. more lasting changes to your long-term plan.
“We have to find a way to live,” said Dan Herron, CPA, founder of Elemental Wealth Advisors in San Luis Obispo, California. Unemployment benefits can do a lot, he says, but they are often not enough to live on. “If we don’t have recurring stimulus checks or other measures in place and there isn’t enough money coming in, you need to figure out what will work.”
Even if you’ve already cut your budget, take a close look at how you could further cut your biggest expenses. For many people, this includes the rent or the mortgage. Can you downsize or move in with roommates? Is refinance your home an option? Also take into account your transport costs. Can you sell or trade in your car for a lower monthly payment? Is your auto insurance payment occupying a significant portion of your budget?
Herron also recommends looking for freelance work in your field, or even taking a gig through services like Uber Eats or Instacart. If you work in a badly affected industry or are not entirely sure what to do in the future, you might as well consider changing careers.
How unemployment insurance helps
Some research shows that extended federal benefits can help combat the lasting financial effects of unemployment.
With more time to collect unemployment benefits, workers can secure jobs that are better suited to their skills and experience, improving both job satisfaction and long-term productivity, according to recent analysis of VoxEU, the policy portal of the Center for Economic Policy Research. Analysts used data from extensions of benefits made ten years ago during the Great Recession.
But when workers lose unemployment benefits, the “scar” effects of unemployment – such as sustained lower wages – can worsen, according to a 2014 study by the Institute for Economic Policy.
“The main economic damage that is most important for long spells of unemployment is the drop in income that results from the withdrawal of UI benefits, which occurs about six months in most states,” the study found. .
The exact length of the extension of additional federal unemployment benefits during the current recession remains unknown, but others already under debate in Congress. In the meantime, continue to recertify yourself for unemployment insurance every week, contact your state unemployment office with issues, and follow up on any correspondence you receive.
You can ask for help
While the financial benefits are clear, there is a stigma around unemployment benefits that can have an emotional impact on claimants, Melkumian says. Many of his clients see the use of unemployment insurance as a “low point”.
“It speaks of a cultural narrative that we have,” he says. “Declaring unemployment is culturally considered one of the most difficult and undesirable things to do. It is considered a last resort and it means that you are not really successful or doing well in life.
But letting go of that self-judgment is important, he says. “If not now, when can you ask for help?” he says. “It becomes a conversation of empowerment and encouragement.” Keeping that positive frame of mind can make all the difference.
Where do we go from here?
The struggle that many unemployed Americans face today is unlike anything we’ve seen before, says Melkumian. He even predicts that we will look back on some of the past year’s financial and emotional toll as an incentive for a traumatic reaction.
Emotional agility has helped many people stay resilient through these times – for some, the hardest they’ve known in their lives, according to Melkumian. “It’s a skill set and a coping strategy that will pay dividends in the long run,” he says.