Here is a chart of unemployment, by duration, each December, for the past two recessions. Most of the damage from labor contractions comes, not from layoffs, but from a seizing up of labor churn. Thus, there is only a slight increase in short-term unemployment at the height of the contraction. Most of the excessive unemployment comes from increasing long-duration unemployment, due to a lack of new hiring.
In both of the last two recessions, long-duration unemployment didn't peak until 2 years after the peak in short-duration unemployment. This is typical. The unusual issue with this contraction has been the enormous size of long-duration unemployment compared to short-duration.
I have fingered Emergency Unemployment Insurance (EUI) for much of this anomaly. Now, if the termination of EUI holds, I would expect to see some downward acceleration in the long-term unemployment rate.
However, it will probably be a long unwinding process, in any case. In this graph, I compare the Unemployment Over 14 Weeks to the Unemployment Over 26 weeks with a 3 month lag. This gives an estimate of the proportion of long term unemployed workers who are leaving unemployment every 3 months. In a healthy economy, this is around 45-50%.
Here is a longer version of this measure, just for kicks. The recent low turnover out of long-duration unemployment was clearly without precedent. There is a caveat. My concern might be overblown. There is a clear long-term trend toward lower turnover in long-duration unemployment. The trend at the peaks has declined by about 15% since the 1970's. If we draw a similar trendline at the troughs, the current low level of long-duration unemployment would not be significantly below that trend. So, it is possible that some of the seemingly unusual long-term unemployment comes from difficult comparisons to the previous two contractions, where long-duration unemployment churn was higher than normal, but was not immediately noticeable because it was fighting this long-term downward trend.
In any case, I would expect to see an acceleration of turnover in the long-duration unemployment measure with the termination of EUI. But, even if I forecast a rebound of turnover to 40% by next quarter and 45% for the remainder of the year, the unemployment rate for duration over 26 weeks would look like this over the course of the year:
As can be seen in the first graph, there isn't much unemployment left to lose among the short-duration unemployed. So, even if we are optimistic about a rebound in long-duration unemployment, an unemployment rate at 5.5% by the end of 2014 is probably the lower bound on what we could expect. I don't know. I guess we'd all be pretty happy with that.
A Side Note:
Here is the unemployment duration for the past 8 months:
We can see the consistent decline across durations that has led to the healthy decline in the overall unemployment rate. The high short-duration unemployment in October was probably due to the government shutdown. The low short-duration unemployment in December seems anomalous. If that rebounds in January, we could see a pop back to 6.9%. This is a very low level for short-duration unemployment. On the other hand, long-duration unemployment dipped strongly in December. This might have been in anticipation of the end of EUI. I am looking for this to continue to fall by about 200,000 per month (reflecting the improved turnover discussed above.)