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YOUNG: The ripple effect of high unemployment
When workers suffer, so does the nation as a whole
Question of the Day
America's abnormally extended period of high unemployment threatens to generate ever-widening circles of pain throughout the U.S. economy. Despite last month's drop, the current period's high unemployment is unprecedented, impacting individuals and the nation's economy and budget in ways that had not been anticipated. These circles not only threaten to ripple out as never before, but to reinforce each other as well.
Only witnesses to the Great Depression have seen anything like the depth and duration of today's unemployment. For the rest of us, only the recovery of 1981-1984 comes close — and it still misses by a mile.
There are some broad similarities between that recovery and this one. Both experienced three negative months and one negative year of real gross domestic product growth. Both also had the only postwar periods of 10 percent unemployment. However, when it comes to unemployment's depth and duration, the similarity ends.
Current high unemployment has lasted far longer. Before February's fall to 7.7 percent, 7.8 percent had been the lowest unemployment level in four years — for 49 consecutive months, unemployment had not fallen below that since rising from December 2008's 7.3 percent. The next longest period at this level — outside the Depression — was 30 months from October 1981 to April 1984.
Today's unemployment is also higher, despite a dramatic drop in the rate of those seeking work. The average annual unemployment rate for 1981-1984 was 8.6 percent. The last four years' average has been 8.9 percent. During the 1980s' 19-month stretch of 7.8-percent-plus unemployment, labor force participation increased from 63.7 percent in October 1981 to 64.3 percent in April 1984. During the recent 49-month stretch of 7.8 percent-plus unemployment, labor force participation plunged from 65.8 percent in December 2008, to 63.3 percent today.
Today's unemployment comprises a far higher percentage of long-term unemployed. In its latest update, the Congressional Budget Office writes: " the long-term unemployed, people who have been seeking work for more than 26 consecutive weeks has topped 40 percent for the past three years, far higher than in any other three-year period since World War II." Today, it has only dropped to 37.4 percent.
Actual numbers of the unemployed paint an even starker picture. According to the Bureau of Labor Statistics, 2008's civilian labor force was 154,287,000, while 2012's was 154,975,000 — an increase of less than 700,000. At the same time, the work-eligible population grew from 233,788,000 to 243,284,000. The difference were those not in the labor force — they increased from 79,501,000 to 88,310,000. As a result, there were 3 million fewer people employed in 2012 than in 2008.
The Congressional Budget Office stated in a 2012 report on high unemployment that there are people "who would like to work but have not searched for a job in the past four weeks as well as those who are working part time, but would prefer full-time work; if those people were counted among the unemployed, the unemployment rate in January 2012 would have been about 15 percent." It was officially 8.3 percent at that time.
If 2008's labor-force participation rate was in effect today rather than the current, lower one, the annual 2012 unemployment rate would have been 11.3 percent instead of 8.1 percent.
The true magnitude of today's unemployment problem is largely unseen and its larger effects are unanticipated.
As the Congressional Budget Office's 2012 study observed, many displaced workers lose earnings upon unemployment but "also often suffer long-term losses in earnings from a combination of factors ."
An unemployed worker's skills atrophy, creating a productivity gap that may never be closed. The same may even occur for new workforce entrants if their training is outdated and not supplemented by on-the-job experience.
Compounded across a large displaced workforce, decreasing skills translate into a less-productive economy. The skills gap of displaced workers is exacerbated by the departure of other experienced workers. Together, these factors lead to less aggregate wealth, and we become poorer as a society.
This economic loss next ripples into a fiscal hit. Less wealth means less government revenue. Not only is there less overall wealth to tax, but as workers fall into lower tax brackets, revenues fall even further.
Simultaneously, as the Congressional Budget Office observes, government spending increases. Resulting deficits send the government increasingly into the debt markets or in search of higher taxes — both resulting in decreased private sector productivity.
America has long been hypnotized by the myth of "ebb and flow economics" — that there are good and bad times, each endlessly begetting the other. The globe's persistently poor areas should be enough to shatter that myth.
Good economies rest on strong foundations; so, too, their recoveries. The current unprecedented unemployment crisis is undermining America's foundation. Simply assuming the economy will right itself is wrong.
America needs to fundamentally rethink its recent readiness to eschew job formation at home. For too long, we have indulged the luxury of relegating certain jobs to other nations — jobs deemed too dirty, too labor-intensive or not innovative enough.
If our current unemployment crisis has a positive side, it is that it allows us to free ourselves — especially those out of work — from these elitist misconceptions. We can start with energy-sector jobs in all their forms and reassess everything currently inhibiting their growth. We risk paying the price as individuals and as a nation if we do not.
J.T. Young served in the Treasury Department and the Office of Management and Budget from 2001 to 2004 and as a congressional staff member from 1987 to 2000.
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