Putting People Back to Work
Edith Rasell, Minister for Economic Justice, Justice & Witness Ministries
April 10, 2010
The U.S. economy is stuck in neutral with the engine turning over but little forward movement. The stock market has recovered many of its losses and a few new jobs have been created but the economy on Main Street is still grim. Millions of families continue to struggle. Nearly one in five people is either unemployed or under-employed(1) and 44% of households have experienced either job losses or reductions in hours.(2) One in eight people is on food stamps.(3) One in nine families cannot make the minimum payments on their credit cards.(4) One in seven mortgages is in default or foreclosure.(5)
In addition to the financial effects, the social and emotional impacts of unemployment are creating a mental health epidemic.(6) While some of the unemployed feel hopeful and eager for a new start, the majority is stressed, depressed, anxious, angry, and feeling hopeless. Today nearly half the unemployed (44%) have been out of work for over six months.(7) For some people and communities recovery will take many years; for others, the effects will persist for a lifetime. For millions of people of all ages, the whole and holy life that is God’s dream for each of us has been lost, at least for a while.
In March, 2010, some 15 million people were officially unemployed, 9.7% of the workforce.(8) Another six million were not officially counted as unemployed even though they did not have jobs and wanted to work.(9) Nine million could only find part-time work when they wanted and needed full time. In all, about 30 million people (nearly 20% of the potential workforce, or one in five workers) were either un- or under-employed. As a rule of thumb, the true number of jobless and under-employed is about twice the official number of unemployed. Even though the economy has started creating a few new jobs, the jobless situation is not expected to change much over the next 12 to 18 months.
Bad as they are, these grim numbers fail to fully describe the weight of the burden. Joblessness is not distributed equally across demographic groups but falls most heavily on people of color, young workers, and those without a college degree.
The official unemployment count is 9.7%. But for non-Hispanic whites, the official level (7.9%) is lower than the national average. For Blacks, unemployment is over twice the rate for whites (16.5%), and among Hispanics it is about 50% higher than for whites (12.6%). These are the official numbers but more accurate rates are about twice these. So in reality, about one-third of African Americans and one-quarter of Hispanics are either un- or under-employed. This is a shocking reality that recalls the era of the Great Depression.
Among youth age 16 to 19, more than one-quarter (26.1%) are officially unemployed (so the more accurate number is over 50%), as are 15.8% of 20 to 24 year olds (actually over 30%). Among workers age 25 and above, 8.8% (over 16%) are unemployed.
For those with a college degree or higher levels of education, official unemployment is 4.9%, roughly half the overall level. But for workers without a high school diploma the rate is 14.5% and for those with a diploma but without any college education, the rate is 10.8%. The real rates are twice these.
Turning Around the Economy. In an economic downturn, firms don’t need workers to produce things because few people are buying. Households have little money to spend. State and local governments are cutting back. Since no one is buying, businesses maintain low levels of production, neither hiring nor making their own purchases. To get out of this slowdown, someone must start buying so firms will need to produce more and hire people to do it. Only the federal government can fill this role, buying needed items, spurring production, and causing firms to hire.(10) These workers will have more money to spend, boosting demand even more, causing more firms to hire more workers, and on and on. Once this positive cycle is well underway, the government can pull back its efforts.
The American Recovery and Re-Investment Act of 2009 (the “Stimulus Bill”) passed by Congress in early 2009 has kept an estimated 6.2 million people out of poverty and created 1.0 to 2.1 million jobs.(11) But much more is needed.
To stimulate demand and turn around the economy the government must spend more than it collects in taxes and fees – it must run a deficit. Given the size of the need, it must run a large one. If instead of running a deficit the increase in government spending were offset by higher taxes, then there would be little boost in demand. Government’s increased buying would be offset by reductions in households’ and firms’ purchases since they would have less to spend after paying their higher taxes. There would be no boost in purchasing, no new jobs, and no economic recovery. Or if cuts in one part of the federal budget were used to offset increases in other areas, the net impact would be no additional spending and no additional jobs.(12)
Federal government deficits can be a problem. Running a large deficit when the economy is reasonably strong is unwise. But not running a large deficit during an extremely weak economy is destructive of individuals and the country. There is no other way to stimulate job creation. The nation needs millions of the new jobs. To return unemployment to the pre-recession level of about 5% we need 11 million new jobs.(13) Moreover, as the population grows and the size of the labor force increases, we need over 100,000 new jobs each month just to keep unemployment from rising. To reach 5% unemployment over three years would require 400,000 new jobs a month for each of the next 36 months. But we have not had this level of job creation, even for three straight months, at any time in the past 20 years.(14) On its own, the economy will create just a small fraction of these jobs. We need a large federal government deficit to move the country toward this job-creation goal.
The deficit and our children. Many Americans and members of Congress worry that large deficits will create an intolerable debt burden for our children and grandchildren. These are legitimate concerns. Cutting the deficit immediately would be the smart thing to do if these were ordinary times. But they aren’t. For the next 12 to 18 months while so many workers are unemployed, the best thing we can do for our children is to maintain a large federal budget deficit.
Joblessness and under-employment are harming our children as well as their parents. Without work, incomes fall. Even food is scarce. Nearly one in four children lives in a household that relies on food stamps.(15) Over one-quarter of the unemployed (and their children) have been threatened with foreclosure or eviction.(16)
Among the unemployed, nearly half (46%) report that job loss has created a major crisis in their lives. Over two-thirds (68%) report feeling depressed, 55% are angry, and 58% report strains in family relations.(17) Stressed, depressed, and angry adults do not make good parents. It is not surprising that four in 10 unemployed parents have noticed behavioral changes in their children and over half report their children’s lives have changed “some” or “a lot.”(18)
Our children need to live in strong families with adequate incomes and secure housing. Our children need parents whose mental and emotional health is stable. Our children need family resources to attend college or training programs. They also need jobs when they finish school.
The economic crisis has been especially hard on young workers. Someone who graduates at a time of high unemployment faces significantly reduced earnings for at least the next 15 years and is more likely to work in a lower level occupation than his or her counterpart who graduated during better economic times.(19)
Young adults already out of school and in the workforce have been especially hard hit by this recession. Workers under age 30 have borne nearly one half of the net employment losses since the recession began.(20) When workers who are laid off during a recession eventually find jobs, on average, they do not regain their old income levels even after 15 to 20 years.(21) Their future earnings remain 15-20% below those of their peers who were not laid off.
Fix the crisis first. The U.S. is in an economic crisis. Children, youth, and young adults are being particularly hard hit. The nation’s priority must be to end the crisis of unemployment by running a large federal government deficit and spending the money wisely, in ways that will create jobs. Smart deficit spending with a focus on job creation would include:
• public investments in our crumbling infrastructure such as roads, railroads, bridges, and schools, and in green jobs like weatherization of homes;
• a public jobs program to hire people directly;
• money for state and local governments to prevent more layoffs; and
• unemployment insurance benefits and health insurance subsidies for laid off workers.
In the longer term, the U.S. must get its financial house in order. Federal budget deficits must be slashed. Looking forward, the most significant cause of deficit spending is the cost of health care, not the economic downturn and the efforts to reverse it. The health care reform bill just signed into law begins this process but much more is needed. The other most important factors driving our deficit are inadequate tax revenues from corporations and upper-income individuals, and unfunded wars.(22)
The U.S. is an extremely wealthy country. We can balance our books and provide for all our people if we have the will to do so. Within the next couple of years we must create millions of jobs by running a large federal government deficit and spending the money wisely. Then we can tackle the problem of our debt and the deficit. Our faith calls us to do no less.
Also see the column by Nobel prize-winning economist and New York Times contributor Paul Krugman and “Address Jobs Now, Deficits Later” by Lawrence Mishel and David M. Walker at Politico.com, Feb 24, 2010
1 Bureau of Labor Statistics, U.S. Department of Labor. 2010. “Employment Situation – February 2010.” March. http://www.bls.gov/news.release/pdf/empsit.pdf
2 Mishel, Lawrence. 2010. “Prospects for Employment Growth: Is Additional Stimulus Needed?” Testimony before the U.S. House of Representatives Committee on Financial Services, Feb 23, 2010, p.3. http://epi.3cdn.net/35f0af0ea5ced556dc_dbm6be4xr.pdf, p 3.
3 DeParle, Jason and Robert Gebeloff. 2009. “Food Stamp Use Soars Across U.S., and Stigma Fades.” New York Times. November 29, A1.
4 Lagorio, Juan. 2009. “U.S. credit card defaults up, signal consumer stress.” Reuters, Sept 15. http://www.reuters.com/article/idUSTRE58E6LH20090915
5 Mortgage Bankers Association. 2010. Press Release February 19. http://www.mortgagebankers.org/NewsandMedia/PressCenter/71891.htm
6 Deprez, Esmé E. “Study Shows Psychological Impact of Unemployment” Business Week September 3, 2009 http://www.businessweek.com/bwdaily/dnflash/content/sep2009/db2009092_648686.htm. Van Horn, Carl. “Recession, Recovery, and Regeneration: Workforce Development in the 21st Century” PowerPoint presentation http://www.heldrich.rutgers.edu/uploadedFiles/Publications/Van_Horn_NGA_Presentation.pdf
7 Bureau of Labor Statistic, U.S. Department of Labor. 2010. “Employment Situation – March 2010.” April 2. http://www.bls.gov/news.release/pdf/empsit.pdf Table A-12.
8 Bureau of Labor Statistics, U.S. Department of Labor. 2010. “Employment Situation – March 2010.” April 2.
9 Some have become discouraged and stopped looking for work. Others may have taken on responsibilities like childcare so they are not immediately available to work. For these and other reasons, they are not included in the official count of the unemployed.
10 The only other way to stimulate the economy is to lower interest rates. But this has already been done. Rates in the U.S. have been essentially at zero for months.
11 Congressional Budget Office. 2010. "Estimated Impact of the American Economic Recovery and Reinvestment Act on Employment and Economic Output from October 2009 Through December 2009." Feb. http://www.cbo.gov/ftpdocs/110xx/doc11044/02-23-ARRA.pdf
12 The only other options for federal intervention would not be as effective as deficit spending. Government “spending” by way of tax cuts for households and corporations is less effective than direct government spending. Some of the money from the tax cut would be saved or used to pay down debt. This is good for debtors but it does not stimulate demand and create jobs. Households and firms also generally purchase more imports than the federal government, stimulating job creation in other countries.
13 Based on Mishel, Lawrence. 2010. “Prospects for Employment Growth: Is Additional Stimulus Needed?” Testimony before the U.S. House of Representatives Committee on Financial Services, Feb 23, 2010, p.3. http://epi.3cdn.net/35f0af0ea5ced556dc_dbm6be4xr.pdf and Shierholz, Heidi. 2010. “Unemployment drops to 9.7% despite more job losses.” Feb 5, 2010. http://www.epi.org/publications/entry/jobs_picture_20100205/
14 Author’s calculations based on data from the Economic Policy Institute http://www.epi.org/page/-/datazone2008/Jobs/gross%20job%20gains%20losses.xls
15 DeParle, Jason and Robert Gebeloff. 2009. “Food Stamp Use Soars Across U.S., and Stigma Fades.” New York Times. November 29, A1.
16 Luo, Michael and Megan Thee-Brenan. 2009. “Poll Reveals Depth and Trauma of Joblessness in U.S.” New York Times, December 15, A1.
17 Marsh, Bill. 2009. “Jobless, Sleepless, Hopeless.” New York Times September 6. Based on polling done by the Heldrich Center for Work Force Development, Rutgers University/Knowledge Networks.
18 Luo and Thee-Brenan, 2009. Op.cit.
19 Researchers believe this is probably because people who graduate during a weak economy face a job market with fewer good options and take less preferred jobs, those with lower pay or outside the field for they were trained. Later after the economy improves, they are unable to fully shift into better jobs with repercussions that can last for years and even decades. Wage loss ranges from 1%-20% each year, relative to the cohorts with the minimum state and national unemployment rates. Kahn, Lisa B. 2009.“The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy” http://mba.yale.edu/faculty/pdf/kahn_longtermlabor.pdf Also see Murray, Sara. 2009. “The Curse of the Class of 2009,” Wall Street Journal May 9. http://online.wsj.com/article/SB124181970915002009.html and Grandel, Stephen. 2010. “In a Tough Job Market, Teens Are Suffering Most”, Time. Jan. 18. http://www.time.com/time/magazine/article/0,9171,1952331-2,00.html#ixzz0g1Mtl77f
20 Between November 2007 and April 2009, the last month analyzed. Sum, Andrew, Ishwar Khatiwada et al. 2009. “The Great Recession of 2007-2009,” Center for Labor Market Studies, Northeastern University, June, p. 19. http://www.clms.neu.edu/publication/documents/Great_Recession_of_20072009.pdf
21 Luo, Michael. 2009. “Years After Layoffs, Many Still Struggle to Match Old Salaries.” New York Times August 4, A1.
22 This assumes the predominant view that tax cuts will not be sun-setted at the end of 2010 and that the Alternative Minimum Tax continues to be adjusted for inflation. For more information see Ruffing, Kathy A. and James R. Horney. "President Obama Largely Inherited Today's Hugh Deficits: Economic Downturn, Financial Rescues, and Bush-Era Policies Drive the Numbers." Center on Budget and Policy Priorities. December 2009. http://www.cbpp.org/files/12-16-09bud.pdf