Chronic Unemployment: Must read piece from America's Future 2010

[LongTomH]

I'll give it to you straight, gang: We're in deep shit! Actually 8 to 10 million jobs deep. That's the estimate of how many jobs were lost in the current recession. The ongoing catastrophe in the Gulf of Mexico is taking media attention away from the crisis; but, the corrosive effects of long-term joblessness will affect society for decades.

That's the conclusion of Terrance Heath, liveblogging from the America's Future 2010 conference. Chronic Unemployment: Crisis or "Correction". Like most American parents these days, Heath is fearful about the future prospects for his children:

Like any parents, we want the best possible future for our children, and we're doing all we can to prepare them to attain it as our parents did for us. Being the grandson of sharecroppers and the son of 1st generation Polish immigrants, to us that means getting an education, being able to land a "good job" with the possibility of moving up the economic ladder, and possibly doing better than one's parents did. But the current rate of long-term joblessness, and Washington's apparent lack of political will to remedy it make me wonder if our elected officials see long-term unemployment as a crisis to be averted or "the new normal" — a "correction" that must simply be accepted.

That "new normal" comes from economist Edmund Phelps, who won a Nobel Prize in Economics for his work on the "natural rate of unemployment." That's traditionally been around 5%. Phelps is advising that the new 'floor' for unemployment is likely to remain 6.5% to 7.5%, even after the 'recovery' is 'complete.'

Heath's article goes through much of the grim statistics we've been hearing; job prospects for the class of 2010 are bleak, to put it mildly. New grads can look forward to fewer job offers and more competition. The competition comes from graduates of the class of 2009 who are still job-hunting and from mid-career workers who have been laid off and are now willing to take entry-level jobs.

Quoting from the New York Times article that Heath references:

Worse, a deep labor recession, like this one, may be more than a temporary hardship. It could signal a long-term decline in living standards.

Where you start out in your career has a big impact on where you end up. When jobs are scarce, more college grads start out in lower-level jobs with lower starting salaries. Academic research suggests that for many of these graduates, that correlates to overall lower levels of career attainment and lower lifetime earnings.

Tough times for college grads mean even tougher times for high school graduates, because fewer jobs mean more competition from college-educated workers. In the past year, 59.5 percent of young high school grads on average had a job, compared with 70.2 percent in 2007.

A number of economic studies confirm the fact that young people who enter the job market during a recession, not only start at lower salaries, they may never catch up. I can confirm that by my own experience: I graduated and entered the workforce during the Nixon recession of the mid-1970's.

Quoting Heath again: "This is how an economy shrinks, or it's at least one way an economy shrinks, and permanently at that."

"This is equivalent to a lower standard of living. In the competition for a chance to work, the man with a lower standard of living will underbid the man with a higher standard of living. And a small group of such thrifty workers will lower the wages of that industry. And the thrifty ones will no longer be thrifty, for their income will have been reduced 'til it balances their expenditure..."

It sounds like a recipe for creating a permanent and all-but-inescapable underclass. The writer of the above, by the way, wasn't addressing the present U.S. economic crisis, or even any aspect of the global economy. That was Jack London describing the grinding poverty of London's East End circa. 1902, where 500,000 of the city's poorest citizens lived in squalor a short taxi ride away from the wealthiest areas of London, in The People of The Abyss.

Things are getting grim! Heath quotes freely from an article by Don Peck in the March 2003 issue of the Atlantic Monthly: How a New Jobless Era Will Transform America:

The worst effects of pervasive joblessness—on family, politics, society—take time to incubate, and they show themselves only slowly. But ultimately, they leave deep marks that endure long after boom times have returned. Some of these marks are just now becoming visible, and even if the economy magically and fully recovers tomorrow, new ones will continue to appear. The longer our economic slump lasts, the deeper they’ll be.

If it persists much longer, this era of high joblessness will likely change the life course and character of a generation of young adults—and quite possibly those of the children behind them as well. It will leave an indelible imprint on many blue-collar white men—and on white culture. It could change the nature of modern marriage, and also cripple marriage as an institution in many communities. It may already be plunging many inner cities into a kind of despair and dysfunction not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years.

The Peck article is long; but, it's rich with information and detailed analysis. I'd call it a 'must read' for anyone trying to make sense of what's happening to our society.

Heath makes a great point that investing to create new jobs, extend unemployment benefits, and keep people in their homes doesn't deepen our "economic hole;" indeed, putting off such investment deepens the hole.

There are other consequences for periods of long unemployment early in a young person's career. People who experienced periods of unemployment in their teens or twenties are more likely to develop habits of heavy drinking later in life and experience bouts of depression. Those symptoms continue throughout life, even in people who later find work. I can also confirm this from my own experience; I still experience bouts of depression in my mid-60's.

I'm breaking the 'four paragraphs' rule; but I am quoting from multiple sources. Here are two more paragraphs that are significant:

The effects are going to passed down from one generation to another, if nothing is done. There is much talk about our children "inheriting" the federal deficit. But if our children inherit the jobs deficit and its consequences, they will have much less of a chance at dealing with the other deficit or any number of other challenges. With the loss of employment and income comes a loss of a host of opportunities that previous generations have inherited from their middle class parents. The decline in the workforce makes it inevitable that state and local governments will make cuts in everything from education to social services that have long helped make up at least some of the difference for children of needy families -- providing, if nothing else, an education and often the full stomach needed to take advantage of the opportunity.

What our children will inherit is fewer opportunities to do as well as or better than their parents. In fact, their children will likely do worse than their parents, as they will not only have fewer opportunities, but far lower expectations for themselves, based on what they see their parents struggling with. (And their parents will probably find it difficult to exhort their kids to get an education, since it will have done the parents little good to do so. The jobless economy they are graduating into now, will be little changed if the jobs deficit persists, as there will be fewer consumers, thus a lower demand for goods and services, and ultimately no need for employers to expand. If anything, it means more joblessness.

Heath isn't despairing for his children's prospects in life; he wants all these issues addressed. He does point out that some conservatives see the new era of long-term unemployment as a "needed correction." That's the mentality of people who want to permanently lower wages for working people. Heath expects such conservatives to work to forestall government action to restore full employment.

[proudohioan]

1. K&R, LongTomH!!!

Excellent OP!

It never did make sense to me; these 'deficit hawks' worrying about handing down the deficit to our children and grandchildren, yet see nothing wrong with handing down a jobless economy, poverty, and all the side-effects that go along with joblessness, hopelessness and poverty. That certainly becomes more of an ongoing societal problem than being handed down a deficit.

Of course, if those 'deficit hawks' were truly concerned......

Ah, they just don't want to see the obvious!

[supernova]

2. They only talk about the deficit

when they want to whine about social services.

They never ever apply it to say, The Pentagon's budget.

[proudohioan]

3. True that! n/t

[treestar]

4. This gloom and doom has been around since the 1970s

Young people, do not let it get you down. You will do fine.

[Hawkowl]

10. You're insane

Why don't you google up real wage decline over the last 40 years. Or maybe real GDP growth as opposed to nominal over the last 40 years. Or how about that stock market real growth over the last 10? Or how much a college education costs now vs. 40 years ago and the corresponding starting wages for graduates.

Jeebus

[LiberalEsto]

11. I have a daughter majoring in math education

She loves kids, especially 5th and 6th graders, and is a whiz at math. Now she's not sure it's worth continuing in her major. Our county schools plan to lay off 600 teachers, and nationwide the number estimates for teacher layoffs range from 100,000 to 300,000. She can't see running up 30,000 dollars in student loans over the next couple of years, only to end up with no job and no way to pay back the loans.

What can I say to her? The chances of her doing fine with an education degree seem to be rather slim.

[LongTomH]

5. More from the Peck article in the Atlantic

Peck isn't optimistic about our ability to innovate our way out of this slump, as we did in previous downturns:

Ultimately, innovation is what allows an economy to grow quickly and create new jobs as old ones obsolesce and disappear. Typically, one salutary side effect of recessions is that they eventually spur booms in innovation. Some laid-off employees become entrepreneurs, working on ideas that have been ignored by corporate bureaucracies, while sclerotic firms in declining industries fail, making way for nimbler enterprises. But according to the economist Edmund Phelps, the innovative potential of the U.S. economy looks limited today. In a recent Harvard Business Review article, he and his co-author, Leo Tilman, argue that dynamism in the U.S. has actually been in decline for a decade; with the housing bubble fueling easy (but unsustainable) growth for much of that time, we just didn’t notice. Phelps and Tilman finger several culprits: a patent system that’s become stifling; an increasingly myopic focus among public companies on quarterly results, rather than long-term value creation; and, not least, a financial industry that for a generation has focused its talent and resources not on funding business innovation, but on proprietary trading, regulatory arbitrage, and arcane financial engineering. None of these problems is likely to disappear quickly. Phelps, who won a Nobel Prize for his work on the “natural” rate of unemployment, believes that until they do disappear, the new floor for unemployment is likely to be between 6.5 percent and 7.5 percent, even once “recovery” is complete.

The line in bold is what Kevin Phillips has been telling us for years; American industry has transitioned from an emphasis on making things to an emphasis on 'playing games with money.'

Continuing the discussion of the long-term impacts of a period of prolonged joblessness, there is a profound effect on psychological and physical health:

Forty years ago, Glen Elder, a sociologist at the University of North Carolina and a pioneer in the field of “life course” studies, found a pronounced diffidence in elderly men (though not women) who had suffered hardship as 20- and 30-somethings during the Depression. Decades later, unlike peers who had been largely spared in the 1930s, these men came across, he told me, as “beaten and withdrawn—lacking ambition, direction, confidence in themselves.” Today in Japan, according to the Japan Productivity Center for Socio-Economic Development, workers who began their careers during the “lost decade” of the 1990s and are now in their 30s make up six out of every 10 cases of depression, stress, and work-related mental disabilities reported by employers.

A large and long-standing body of research shows that physical health tends to deteriorate during unemployment, most likely through a combination of fewer financial resources and a higher stress level. The most-recent research suggests that poor health is prevalent among the young, and endures for a lifetime. Till Von Wachter, an economist at Columbia University, and Daniel Sullivan, of the Federal Reserve Bank of Chicago, recently looked at the mortality rates of men who had lost their jobs in Pennsylvania in the 1970s and ’80s. They found that particularly among men in their 40s or 50s, mortality rates rose markedly soon after a layoff. But regardless of age, all men were left with an elevated risk of dying in each year following their episode of unemployment, for the rest of their lives. And so, the younger the worker, the more pronounced the effect on his lifespan: the lives of workers who had lost their job at 30, Von Wachter and Sullivan found, were shorter than those who had lost their job at 50 or 55—and more than a year and a half shorter than those who’d never lost their job at all.

There is also an impact on marriages: Men who are laid off are likely to experience a divorce later. Low-income young people are less likely to marry if they experience prolonged unemployment.

Peck also details the corrosive effects on the 'social fabric;' after detailing the few positive effects of economic downturns (People become less materialistic; some people become more concerned about inequality.), he goes on to say:

But for the most part, these benefits seem thin, uncertain, and far off. In The Moral Consequences of Economic Growth, the economic historian Benjamin Friedman argues that both inside and outside the U.S., lengthy periods of economic stagnation or decline have almost always left society more mean-spirited and less inclusive, and have usually stopped or reversed the advance of rights and freedoms. A high level of national wealth, Friedman writes, “is no bar to a society’s retreat into rigidity and intolerance once enough of its citizens lose the sense that they are getting ahead.” When material progress falters, Friedman concludes, people become more jealous of their status relative to others. Anti-immigrant sentiment typically increases, as does conflict between races and classes; concern for the poor tends to decline.

<snip>

In the Internet age, it is particularly easy to see the bile that has always lurked within American society. More difficult, in the moment, is discerning precisely how these lean times are affecting society’s character. In many respects, the U.S. was more socially tolerant entering this recession than at any time in its history, and a variety of national polls on social conflict since then have shown mixed results. Signs of looming class warfare or racial conflagration are not much in evidence. But some seeds of discontent are slowly germinating. The town-hall meetings last summer and fall were contentious, often uncivil, and at times given over to inchoate outrage. One National Journal poll in October showed that whites (especially white men) were feeling particularly anxious about their future and alienated by the government. We will have to wait and see exactly how these hard times will reshape our social fabric. But they certainly will reshape it, and all the more so the longer they extend.

The outrage mentioned in the previous paragraph is being fed by unscrupulous hatemongers like Glenn Beck, Rush Limbaugh and their ilk. Not surprisingly, there has been increased violence: The shootings at the Holocaust Memorial, the shootings at the Unitarian Universalist Church, etc.

[pnorman]

6. This is an alarming excerpt:

"The competition comes from graduates of the class of 2009 who are still job-hunting and from mid-career workers who have been laid off and are now willing to take entry-level jobs."

[JohnWxy]

7. This is why Obama's emphasis on investing in new technologies is so important. Jobs for the future.

New energy technologies in particular. Redirect money from going out of the country for imported oil (for example) and into domestically sourced, more efficient, sustainable energy technologies (e.g. wind, solar.. domestically sourced.)

[tXr]

8. Grandson of sharecroppers, son of 1st generation Polish immigrants, father of sharecroppers.

[amborin]

9. K&R 37% unemployment in LA's inner city areas