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Princeton’s Krueger: This is the economy’s biggest problem

The millions of workers unemployed for long stretches represent the "most serious problem" the economy faces right now, former White House economist Alan Krueger told CNBC on Monday.

They face discrimination from employers and grow further removed from the active labor force, which could lead to deep ramifications for society as the gap between rich and poor continues to grow, he said on CNBC's "Squawk Box."

"The longer people are unemployed, the more challenges they face," Krueger said. "Employers are less likely to call them in for interviews. They grow discouraged. Their skills grow obsolete. They become more isolated, more disengaged."

(Read more: More bad news for long-term unemployed)

More than a third of of the 10.5 million unemployed workers in the U.S. have been jobless for more than six months, said Krueger, an economist at Princeton University. Krueger recently co-authored a study that found only 1 in 10 long-term jobless workers finds new employment every year.

Krueger said the country needs a concerted effort on monetary and fiscal fixes to improve the situation. While the Federal Reserve's options to target only the long-term unemployed remain limited, Krueger said the central bank's stimulus programs helped the overall labor picture. He also suggests implementing tax breaks to entice employers to hire workers who have been on the sidelines for months.

Many employers count long idle periods against workers because they "figure there's a reason why these people have been passed over," Krueger said.

Applicants line up for a job fair in Fort Washington, Md., on Sept. 17, 2013.Jahi Chkwenduiu | The Washington Post | Getty Images

The number of long-term jobless workers increased by more than 200,000 in February to 3.5 million, according to the Bureau of Labor Statistics. The year-to-year trends appear more encouraging, with the number of long-term unemployed dropping by about 900,000 workers.

Many job seekers leave the labor force when they can't find work, however, and the problem is more acute among the long-term unemployed. Now that unemployment benefits have expired, they have a harder time staying in a job search, said Krueger,who was chairman the White House Council of Economic Advisers from 2011 to 2013.

(Read more: Survey: Economists see US growth pickup this year)

What's more, the trend further hinders economic mobility, which means the ability to improve economic status, Krueger said. Even if economic mobility were to remain unchanged, the income gap between top and bottom earners would grow at a fast clip, he said.

"Children from the low-income families have many disadvantages, and the luck of who's one's parents are today matters much more than it has in the past," Krueger said. "Even if mobility remains unchanged, we're going to have a problem, because of the tremendous divergence."

—By CNBC's Jeff Morganteen. Follow him on Twitter at @jmorganteen.

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