Tuesday, April 5, 2011

Growing an American underclass

One difficult part of The Great Recession is the high numbers of over-50 people laid off. This past week CBS Sunday Morning ran a piece "Baby Boomers: America's new unemployables." Interestingly enough this isn't limited to the US as BBC News has an article Growing army of over-50s join the battle to find work.

The problem is made worse by the longer-term nature of the unemployment. As was noted in this Chronicle/Bloomberg article:
6.12 million

That's the number of unemployed Americans who have been seeking work for at least six months. Even though the unemployment picture improved last month, the ranks of these chronically jobless people actually grew - a fact that concerns economists. The group is currently four times as large as its average level since 1970. The overall jobless rate, meanwhile, was 8.8 percent in March, the lowest percentage in two years.

The Wall Street Journal noted today at the end of an article about states planning to pare back unemployment:
The expansive net of unemployment assistance was the result of a downturn that led to the largest pool of long-term unemployed workers on record. More than 6.1 million Americans had been out of work for more than six months as of March. Of everyone who was unemployed last month, 45.5% were considered long-term unemployed.

Persistently high unemployment prompted Congress to repeatedly extend emergency unemployment benefits, but the most recent extensions were met with resistance from some legislators and led to lapses in benefits. Amid concerns about government spending and the country’s massive deficit, Congress could let the program expire early next year.
Unemployment insurance is a critical element of the "safety net" and we've gotten into a trap. Many states like mine (California) failed to make even a modest effort to raise Unemployment Insurance rates on employers during good times after the last recession when the dot-com bubble burst. It was obvious then that the rates generated only about 30% of the revenue needed to cover the initial benefit period in a significant recession.

So in addition to all the benefit period extensions funded by the federal government through borrowing, California's Unemployment Insurance Fund has now "borrowed" $10 billion (and growing daily) from the federal government (which of course borrowed the $10 billion).

Companies like Intel made a bundle without paying anywhere near enough before shutting its last factory in Silicon Valley. Then their executives complain about the deficit and taxes.

The startling fact is that the number of people employed in the Greater Bay Area (including Silicon Valley, the East Bay, the Peninsula, San Francisco and Marin) was roughly the same at the end of 2010 as it was in 1990. If you graph employment in the region from 1990 to today it looks like a roller coaster ride - a steep climb, a steep downgrade, but a short climb, then a final down slope back to where we started.

It's the region that included all the Bay Area's much vaunted tech development, bio-genetic research, etc.

Now we're again seeing positively reported hiring, associated with another dot-com bubble including "apps" developers related to Google and Apple.

We can't continue an economic safety net system that lets these companies underpay unemployment insurance contributions when they're raking in big profits. We know the bottom will fall out followed by a period of significant unemployment requiring more government debt.

It's a destructive and lengthening cycle as noted last week in a New York Times article headlined Comparing Recoveries: Job Changes:

The chart above shows economywide job changes in this last recession and recovery compared with other recent ones, with the black line representing the current downturn. Since the downturn began in December 2007, the economy has shed, on net, about 5.3 percent of its nonfarm payroll jobs. And that doesn’t even account for the fact that the working-age population has continued to grow, meaning that if the economy were healthy we should have more jobs today than we had before the recession.

The unemployment rate (measured by a different government survey, and based on how many people are without jobs but are actively looking for work) ticked downward to 8.8 percent in February, from 8.9 percent in February. That means joblessness is at its lowest rate in two years. The number may go up again, though, as more discouraged workers return to actively searching for jobs when they hear employers are hiring again.
Something has to be done, or 21st Century America will create a growing underclass of old and young job seekers.

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