The Broken Economy

The Broken Economy

Two and a half years after the recession started, Wall Street executives are once again collecting billions in bonuses, businesses are flush with cash, but most of America is still hurting. After a growth spurt at the end of last year, the U.S. economy is slowing, as the fiscal stimulus dissipates and spending contractions at the state and local level undermine injections from the federal government. The growth that has occurred is largely the result of replenishing inventories, and this has run its course. Most distressing, unemployment is at 9.5 percent, a rate historically associated with a severe recession, and it now appears likely that it will rise into next year.

The unemployment rate understates the scope of the problem for U.S. workers: 25.8 million workers are either unemployed or underemployed (this includes those who want to work but have given up looking and thus are not counted in official unemployment figures and the underemployed, those who are working part time but want full-time jobs). The Economic Policy Institute estimates that roughly a third of the work force and more than 40 percent of minority workers will be unemployed or underemployed at some point during the year. Almost half of all unemployed workers (6.6 million) have been unemployed for over six months.

The economy has 7.7 million fewer jobs than it did when the recession started. In fact, we needed to add around 3.2 million jobs simply to keep pace with population growth. The job shortage is now a staggering 10.9 million.

Unemployment at this level, for this length of time, will substantially harm many individuals and families. There is a growing body of evidence on the deleterious effects of long-term unemployment—what John Irons has called “economic scarring.” A few examples:

• The average mature worker who loses a stable job will see his or her earnings fall by 20 percent over fifteen to twenty years. Job displacement also leads to a 15 percent to 20 percent increase in death rates over the ensuing years.

• Recent surveys confirm that unemployment is hard on families. More than half of the long-term unemployed reported that they had borrowed money from family or friends, 45 percent have increased credit card debt, and 70 percent have used money saved for retirement.

• Four in ten people surveyed said that they went without medical care for themselves or family members.

• Are we entering a new era of unprecedented high joblessness? John Schmitt and Tessa Conroy of the Center for Economic Policy Research have pointed out that even if the economy creates jobs at a pace equal to the fastest four years of the early 2000s, we will not return to the December 2007 level of employment until April 2021. And even if we make the more optimistic assumption that jobs grow at the rate of the fastest four years of the 1990s recovery, we would not return to pre-recession levels until September 2014.