More than a third of unemployed Americans have been jobless for more than six months, says a BMO report.

"Long duration structural unemployment … now represents a record 3.2 per cent of the labour force and a record 33.7 per cent of the unemployed," BMO chief economist Sherry Cooper wrote in a research note issued Friday.

People stand in line waiting to speak to a receptionist at a Vancouver job centre. The U.S. unemployment rate, currently at 8.7 per cent, will likely increase to more than 10 per cent at some point next year, economists predict. (Chuck Stoody/Canadian Press)

It's a situation Canada faced during painful recessions in the early 1980s and 1990s. In those cases, the only remedy was sharp government spending cutbacks to rein in budget deficits — something Washington has shown no willingness to do thus far, says Cooper.

According to the U.S. Treasury Department, Washington had a budget deficit of $1.3 trillion at the end of August.

The outlook is better in Canada, where 1.5 per cent of the workforce and only 17 per cent of those unemployed are considered "structurally unemployed" Cooper notes.

Low turnover

The U.S. economy needs eight million new jobs simply to return to employment levels seen in 2006 and 2007, Cooper notes.

Rising unemployment, declining hiring levels and an anemic voluntary separation rate have combined to put job turnover at historic lows, Cooper says.

Compensation consultants Watson Wyatt said recently that to maintain morale for remaining employees, companies are opting to lay off workers and cut hiring as opposed to reducing paycheques, which further exacerbates the difficulty in finding permanent employment.

"This concentrates the pain of the recession on the unemployed, who find themselves jobless for a very long time," Cooper noted.

Long-term structural unemployment in the U.S. will continue for some time as the economy deleverages and sectors such as finance and retail are likely to continue to contract, Cooper predicted.