Sustained, high joblessness causes lasting damage to wages, benefits, income, and wealth

Sustained unemployment deeply scars economy, families, says EPI report

By Lawrence Mishel and Heidi Shierholz
Economic Policy Institute, August 31, 2011

The pain caused by persistently high unemployment is not limited to workers who are currently unemployed, a new Economic Policy Institute (EPI) briefing paper finds.  The economic damage extends to the broader workforce and the country in general through lost wages, income and wealth, as well as higher poverty.  The national unemployment rate is currently 9.1%, and it has been at or above 8.8% for the past 28 months.  The underemployment rate has remained between 15.7% and 17.4% since the spring of 2009, and it currently stands at 16.1%.

Sustained, high joblessness causes lasting damage to wages, benefits, income, and wealth by EPI President Lawrence Mishel and economist Heidi Shierholz explains that the monthly unemployment and underemployment rates do not capture the full picture of how many U.S. workers experience labor market distress.  Roughly 31% of U.S. workers experienced unemployment or underemployment at some point in 2009.  The unemployment rate also does not capture how severe the problem of long-term unemployment is—the share of unemployed workers who have been out of work for over six months has hovered around 45% for more than a year.  Finally, the unemployment rate as it is experienced by children is higher than the national average.  In 2010, the unemployment rate averaged 9.6%, but 10.6% of children had at least one unemployed parent.

The jobs shortfall in the labor market is roughly 11.1 million jobs—there are 6.8 million fewer jobs than there were when the recession started, and 4.3 million additional jobs were needed to keep pace with the growth in the working-age population.  To fill the gap by mid-2014, three years from now, 400,000 jobs would need to be created each month.  However, over the last six months, the economy has added an average of 144,000 jobs each month—at that rate, it will take 15 years to get back to the pre-recession unemployment rate.  The shedding of public sector jobs—35,000 a month—is contributing to the slow pace of job growth.  Over 40% of private-sector job gains in the current recovery have been canceled out by job losses in the public sector.  Forecasters expect the unemployment rate to be at least 8.5% at the end of 2012, a rate higher than the worst months of the prior two recessions.

One of the significant consequences of persistently high unemployment is slowed wage growth.  In fact, wage growth has been slower in the last two years than at any time over the last 30 years, a three-decade period that has been marked by stagnating wages across occupations and education levels.  For instance, the inflation-adjusted median weekly wages for both high school and college-educated men have been stagnant for ten years. High unemployment also causes family incomes to fall.  The median working-age household saw an income decline of $2,700 from 2007 to 2009, on the heels of one of the worst business cycles (2000-07) on record for income or employment gains.  As a result, the typical working-age household brought in roughly $5,000 less in 2009 than it did in 2000.  Poverty has also risen—in 2009, one in seven people was living in poverty.  For children under the age of 6, the figure was one in four.  Finally, average wealth declined 17.3% a year for the two years between 2007 and 2009, and it declined substantially faster for those with less of it to begin with.  The bottom four-fifths of households had less wealth in 2009 ($62,900) than in 1983 ($65,300). In contrast, the wealth of the top fifth was 50% larger in 2009 than in 1983.

The authors highlight racial and ethnic labor market disparities throughout the paper. Though roughly 31% of all U.S. workers experienced unemployment or underemployment at some point in 2009—the rates were higher for African-American and Hispanic workers, at 36% and 41%, respectively.  Whereas 14.3% of white children had an unemployed or underemployed parent in 2010, one in four African-American or Hispanic children had an underemployed parent. Racial disparities are also apparent in unemployment rates even among those with a college degree: in the first six months of 2011 unemployment was 4.6% among white college graduates but 6.5% and 8.6% among, respectively, Hispanic and African-American college graduates.  Last, all households lost substantial wealth in the recent financial crisis.  However, the median wealth of African-American households was reduced to just $2,200 in 2009, which was lower than it was a generation earlier in 1983, when it was $6,300. In contrast, median white wealth fell to $97,900 in 2009 but was still higher than in 1983, when it was $94,100, and was 44 times as large as the median African-American household’s wealth.

The problems in the labor market do not arise from “structural unemployment,” a situation where the unemployed lack the skills for the available jobs. The ratio of job seekers (unemployed) to job openings has been substantially above 4-to-1 for more than two-and-a-half years, indicating that our problem is a shortfall of jobs. Moreover, unemployment has more than doubled for workers in every education group, including those with a college degree or an advanced degree.

Read the briefing paper

Listen to authors EPI President Lawrence Mishel and labor economist Heidi Shierholz discuss the paper’s findings and answer questions.

For more information contact: Phoebe Silag or Karen Conner, 202-775-8810

Source: Economic Policy Institute

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