One of the most notable features of the Great Recession relative to that of all previous recessions is that in this one, once you lose your job, it has been incredibly difficult to find a new one. As a result, people have been pounding the pavement looking for work for periods of time that would have been unheard of in any other downturn.

There are two basic measures of unemployment duration provided in the monthly employment report — the average (mean) duration and the median duration. The average has a longer history, but since it is impossible to be unemployed for less than zero weeks, it will always be higher than the median, and is a number that is much more prone to be skewed by outliers.

However, as the first graph below shows, regardless of measure, this downturn has been FAR worse than anything else the nation has experienced since the Great Depression. Prior to this downturn, the worst the average duration of unemployment had ever reached was 21.2 weeks back in July of 1983. The worst median duration of unemployment had ever hit was 12.3 weeks hit two months earlier in May 2003. The long term average for the mean unemployment duration (since 1947) is 13.7 weeks. The long term average for the median is 7.4 weeks.

In January, the signals were mixed.  We got a little bit of good news in that the median duration of unemployment dropped to 19.9 weeks from the all-time record high set in December. The average duration of unemployment, however, set yet another new record of 30.2 weeks, up from 29.1 weeks in December.

Let’s take a closer look. The BLS breaks down the unemployed into four categories based on how long people have been looking for work. Note that none of the figures are adjusted for population growth, so you would expect all of them to have a slight upward tilt over the long term. However, that has not generally been the case with respect to short term unemployment (less than 5 weeks).

Yes short-term unemployment tends to go up a little bit when the economy gets soft, but generally it has been trending down since the early 1980’s. For the most part, though, short-term unemployment is pretty stable. There will always be short-term unemployed, even in the most robust of economic booms.  Generally, short-term unemployment is no big deal, sort of like an unplanned vacation — unless it turns into long-term unemployment.

Regular state unemployment benefits don’t fully make up for the lost paycheck, but usually expenses are lower as well. People might have to dip into their savings a little bit, or run up their credit cards, but savings are unlikely to be totally depleted, or cards maxed out.

If you think you are going back to work soon, you will continue with many expenses. You don’t quit the country club (and forfeit the initiation fees) just because you are out of work for a few weeks — hey, you finally have a chance to play a few rounds! You don’t cancel little Julie’s ballet or little Johnny’s piano lessons just because you got a pink slip. However, as time wears on, the difference between the old paycheck and the unemployment benefits starts to add up. Also, your contacts start to get stale and your skills deteriorate. 

When you go past 26 weeks, or six months, in normal times regular state unemployment benefits expire. During economic downturns, the Federal government will usually step in with extended benefits. Currently the number of people on extended, Federally paid, unemployment benefits far exceeds the number on regular state based benefits — 5.855 million to 4.602 million.

If it were not for the extended benefits, which are a major part of the ARRA, or Stimulus act, those people would be left with no income whatsoever, their savings would be completely depleted and their credit cards maxed out. With no income, they would not be able shop at the Salvation Army, let alone at Wal-Mart (WMT) or J.C. Penney’s (JCP). They would have to rely on the local food bank instead of getting their groceries at Kroger’s (KR).

While people on extended benefits will not be shopping at Saks (SKS), at least they can still go to Big Lots (BIG). Those retailers (and the companies that make and transport the goods) would then be forced to lay off even more people.

Now, one can argue that it has cost too much to save these millions of fellow citizens from Calcutta-style poverty. However, only someone who for political purposes wants to see as much suffering in the country as possible could argue that the ARRA has had no positive effects. Those retail jobs are some of the ones “saved” by the ARRA.

One can also legitimately worry about extended benefit programs turning into a back-door welfare program, and fostering a culture of dependency. Clearly, extended benefits are not a full substitute for real jobs. However, the alternative of cutting people off completely after six months would be, quite frankly, cruel in this economic environment.

What really makes a recession a recession is when the number of longer-term unemployed starts to grow.  Take a look at the black line, which is the number of people who have been out of work for more than six months. It is far more volatile than the shorter-term unemployed groups, rising during recessions (and the immediate aftermath of recessions) but then plunging as economic expansions take hold.

Note that in the last expansion, the number of long-term unemployed fell, but not nearly as far as it had in previous expansions. At the best point of the last expansion, the number of long-term unemployed was almost as high as at the peak following the deep mid-1970’s recession and significantly higher than at the peak of any downturn prior to that (again the numbers are not population-adjusted, so one would expect in general to see higher highs and higher lows over time).

However, the high starting level sure didn’t stop long-term unemployment from soaring in the Great Recession. There are now over 6.3 million people who have been out of work for more than 26 weeks — that is almost a five-fold increase from when the recession started in December 2007. The long-term unemployed now make up 41.2% of all the unemployed, up from 39.8% in December, and just 22.4% a year ago. The long-term average of long-term unemployed is just 13.3%.

Another way to look at this data is to examine the ratio between the long-term (over 26 weeks) and short-term (under 5 week) unemployed. Prior to the Great Recession, the worst the ratio had ever hit was 0.78, in March 1983. Since 1947, the ratio has averaged 0.34.

The first time we ever had more long-term unemployed than short-term unemployed was in April of 2009. In January, the ratio was at 2.10, just slightly below the record 2.12 set in November. In the absence of the Stimulus Bill, it is likely that there would be far more unemployed, both short and long term.

I would argue that the problem with the Stimulus Bill was that it was too small, not that it did not work. I would also point out that at the time the bill was being debated I was arguing that it was insufficient to do the job. That point of view, even though shared by several Nobel Laureates in Economics, was almost entirely shut out of the debate at the time.

The imbalances in the economy that caused this downturn were roughly on the same order of magnitude with the imbalances in the late 1920’s prior to the Great Depression. The financial panic was by many measures just as bad, if not worse, although much fo the data from the late 1920’s and early 1930’s is spotty.

However, where there was good data — for example the spread on yields between AAA corporate bonds and BBB corporate bonds (a good measure of the markets perception of the probability of widespread bankruptcies) — the situation was actually worse than the spreads in the early 1930’s. The big difference is that this time around, we acted quickly, both under the past administration and even more so under the current one. It was if action were taken to fight the Great Depression in 1930 rather than waiting until 1933.

That is the reason we are only in the Great Recession (and based on GDP coming out of it) rather than being in the Second Great Depression. While the situation is generally better than it was a year ago, or at least headed in the right direction when things were going at warp speed in the wrong direction back then, the situation today is far from satisfactory. More action is needed, and the Jobs bill currently under consideration in the Senate is a good start, but also probably not enough to really get the job done.

Yes, a new jobs bill will add to the deficit, but the biggest cause of the increase in the deficit over the last year has not been increased spending, but lower tax revenues. To some extent, that is due to tax cuts that were part of the ARRA (tax cuts which, by the way, went to 95% of families).

However, the bulk of the decline in tax revenues has been because of the weak economy. With profits down, so are corporate income tax revenues. People with no income do not pay individual income taxes. Unemployment benefits are taxable (so some of what was spent is recouped), but people getting unemployment benefits will be in a lower tax bracket than they were when they were employed.

In other words, the money spent on the Stimulus Bill did not add dollar for dollar to the deficit relative to what the deficit would have been in its absence. There is some truth to the supply-sider argument that dynamic scoring of tax cuts can lead to economic stimulus, but anyone claiming that tax cuts actually increase tax revenues has not looked at reality.

With a top marginal rate of 35% right now, we are firmly on the left hand side of the Laffer curve.  The Kennedy tax cuts were from top marginal rates of over 90%, so in that case we were probably very far on the right side of the curve. Of course, if you are going to generate the same amount of revenue with two different tax rates, the lower one is going to be preferable, and the higher one just stupidly punitive.

However, as the graph below shows (from here) there really is no empirical evidence that lower top marginal tax rates result in higher GDP growth. However, it is held with near religious conviction amongst almost all the anchors and the vast majority of commentators on CNBC. People believe these things as a matter of faith.

But economics should not be faith-based, it should be driven by evidence. The GDP growth rates are simply too noisy to draw any firm conclusions, and there are countless other variables that affect GDP growth. But if anything the evidence would suggest that lower top marginal tax rates are associated with lower, not higher, GDP growth rates.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

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