What happens when the jobless give up?

unemployment_jobs_2.ju.top.jpg By Nina Easton, senior editor-at-large

FORTUNE -- What happens to a nation's collective psyche when millions of once-productive people remain out of work for months or even years? What happens when unemployed husbands resign themselves to relying on a wife's income, when unemployed wives feel trapped at home, when twenty- and thirtysomethings calculate that they'd rather live off their parents than face a cut-throat job market, when middle-aged men and women stop searching for jobs after realizing they're hopelessly lost in a haze of rapid-fire technological change?

The pre-holiday bickering over tax cuts and extending unemployment benefits is drowning out a December government number so frightening it should concentrate the minds of every posturing political leader in Washington: 9.8% unemployment. That is staggering, up from when the recession ended 18 months ago, and comes despite signs of recovery in retail, real estate, and corporate profits.

Especially troubling is that long-term unemployment continues to mount. "It is unprecedented in post--World War II U.S. history to have 3% of the labor force unemployed for over a year," Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said in a recent speech. "If history is any guide, this year-plus unemployment rate will only revert to pre-recession levels after several years."

Add to that mix this perplexing fact: While there aren't nearly enough jobs, there are more of them -- a lot more. Since the month after the recession ended, the number of available jobs has surged 44%, according to the Labor Department. Job vacancies are nowhere near pre-recession levels (according to the Conference Board, there are still 10.4 million more unemployed workers than advertised vacancies). Still, there are as many as three million jobs going unfilled.

Various economists have posited various reasons for this mismatch:

* Employers, still reeling from all the downsizing they've had to do, are pickier about whom they hire and slower to close the deal.

* Jobless workers, especially those out of work for months and years, don't have the skills to multitask in a fast-paced economy where medical workers need to know electronic record-keeping, machinists need computer skills, and marketing managers can no longer delegate software duties.

* Workers, some of whom feel cushioned by unemployment benefits, are too picky to take lower-paying or less prestigious jobs.

* There is a geographic divide between where the jobless are -- states like Florida, Nevada, and Michigan -- and where the jobs are -- states like Maryland, South Dakota, and Iowa. Relocation is especially hard if your mortgage is under water.

The cost of not working

Whatever the right mix of reasons, the fallout is crippling. Economically, long-term joblessness means fewer dollars for consumption. For deficit control, it means fewer taxpayers contributing to government revenues and tens of billions more spent on unemployment insurance. Then there is the psychological toll on individuals and families -- and on the nation.

Early on in the recession, popular culture seized on the romantic notion of tightening our belts and looking inward to frills-free fun with our friends and families, after a decade of borrowed hyperconsumption. Now we need to ask a less romantic question: What happens when millions of Americans lose the habit of work, a habit that lends balance, structure, dignity -- and, of course, economic support -- to lives?

The longer people are unemployed the less employable they become. Skills become rusty; managers look more suspiciously at someone who has been out of work for years than a candidate already employed. I remember an old conservative saying: Graduate from high school; get a job -- any job; get married -- stay married; and (statistically speaking) your chances of landing in poverty are practically nil.

Even if that was once true, that calculation has lost some relevancy in this far more complex economy. But the concept of getting people back on the ladder, even if it's on a lower rung, is a worthy one.

Hopefully, Congress will pass a tax bill that gives business enough certainty and financial incentive to create more jobs. Hopefully, economic growth will begin to put a dent in that loss of 8 million jobs since the recession hit.

But an even knottier problem facing the nation's political leadership, from the President on down, is how to get the long-term unemployed into jobs as they become available. To avoid becoming chronically unemployed, people need more than platitudes offering sympathy. Career reinvention requires encouragement and guidance. Business leaders have specifics to offer on what jobs will be coming down the pike in expanding sectors like health care, and what skills are needed. They should to be brought into the political dialogue.

President Obama opened the conversation this fall with an industry-led initiative to better match community college graduates with skilled jobs. He followed with a Dec. 6 speech calling for a "Sputnik moment" to restart American innovation to create jobs and compete in the world.

But as he assembles a largely new economic team, the President face a more immediate challenge: the need for a "Manhattan Project" to get the long-term jobless back to work, something that would boost the psyche of both the unemployed and the nation. To top of page