(With the greatest respect for the late visionary Steve Jobs)
The steady chorus from talking heads and politicians of all stripes these days is that jobs, and the lack thereof, is the single biggest problem we face. For once, this is more than media fodder and political posturing. By nearly all measures, we are in the worst span of unemployment since the Depression.
The jobs statistics are indeed bleak. As of November 2011, the official unemployment rate has been at or above 9% for 29 months. Even in the oft-referenced high unemployment years of 1982 and 1983, the rate was above 9% for only 19 months. (By comparison, unemployment went to over 15% in 1931, reached nearly 25% in 1933 and stayed above 15% well into 1940.) The average length of unemployment has reached over 40 weeks; since 1948, this average length of time had not exceeded 21 weeks until May 2009. In sheer numbers, over 6 million workers have been out of work for more than 27 weeks, the threshold for long-term unemployment. And even these numbers may understate the situation. The “labor underutilization” rate, which includes those who are working part-time out of necessity rather than choice and those who have given up looking for work, is at 16.5%, a total of nearly 27 million workers. By most estimates, it will take about five years to return to pre-recession employment levels, and that is only if the economy can begin creating new jobs at several times the current rate.
The impact of high unemployment is far-reaching. Job loss has been a major contributor to the foreclosure crisis that has yet to abate. The psychological and emotional toll of not working, and not being able to meet financial obligations and responsibilities, weighs heavily on individuals and families. Over time, the skills of the labor force can atrophy, further slowing a recovery in employment, as evidenced by the reports of manufacturers having difficulty finding skilled workers. (There are also reports that some employers are reluctant or even unwilling to consider applicants who have been unemployed for a long time.) Communities and social service agencies are overwhelmed by the needs of the unemployed. The long-term unemployed are eventually left to rely on other government programs. For example, a record 46 million people received food stamps in August.
As older workers give up searching for a job and choose to go on Social Security, the financial footing of the Social Security is slipping far earlier than previously estimated. The program is now paying out more in benefits each year than it is taking in from employment taxes. Likewise, the combination of aging baby boomers and laid-off workers has increased applications for disability benefits 30% from 2008 and is pushing the Social Security disability program to the brink of insolvency. There are concerns that the lack of jobs is creating a semi-permanent class of long-term unemployed, exacerbating the growing economic inequality in the US.
The cumulative effect of this long period of high unemployment is seen in household incomes. Adjusted for inflation, the median household income fell 3.2% during the last recession which ended in June 2009. But in the following two years, median household income continued to fall, and at a faster rate, dropping another 6.7% through June 2011. And even finding a job may not boost incomes. A study by a Princeton economics professor found that people who lost jobs in the recession made an average of 17.5% less, compared to their old jobs, when they finally found new jobs. For an economy that is still consumer-driven, this does not bode well.
Perhaps this high level of unemployment is part of the “new normal” that we’ll just have to get used to. After all, Europe had unemployment above 9% for most of the 1990’s, and it stayed well above the US level until March 2009, near the end of the recession. Even Germany, now considered the strongest economy in Europe, had unemployment hovering around 10% until 2006.
There are significant differences, however, between Europe and the US regarding unemployment. The rate of previous income replaced by unemployment insurance benefits is much higher in Europe, well over 50% in many countries. Benefits are paid for longer periods, sometimes at declining rates, but still as long as four or five years. (Congress will vote soon on whether to extend unemployment benefits for up to 99 weeks in some states. Even with prior benefits extensions, only 48% of the unemployed in the US are receiving unemployment checks. And with all governments focusing on long-term fiscal issues, it is more likely that European countries will reduce their benefits rather than the US adopting a European unemployment model. ) It is also very costly in most European countries for companies to terminate workers. An unintended consequence of those policies is that firms are hesitant to hire workers in the first place. The US labor market has traditionally been much more fluid, with companies expanding and contracting their workforce more frequently. Until now, that has meant that unemployment would drop rapidly in an economic recovery.
It is clear that unemployment is a huge and complex problem. What is far less clear, unfortunately, is how that problem can be addressed and corrected.