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Chronic Unemployment: Crisis or "Correction"

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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.

Every night I help our seven year old with his homework. In the event he doesn't have any, then we work on other things with him to help him in school; like handwriting practice or going through his math flash cards. He's a bright kid, bright enough to have been placed in an advanced math class — which, in the first grade, means he's already taking on some second grade math. His teacher also says he's one of the best readers in his class, which I think is due to the fact that we started reading to him at an early age and keep him reading with regular trips to the nearby public library.

We're already repeating all of the above with our 2 1/2 year old son, reading the same books to him, etc. Both boys have had college savings plans since infancy. But without some direct action to relieve long-term unemployment and avoid its long term consequences, I fear we're preparing for a world that won't exist when they graduate and are ready to enter the workforce.

While education is helpful, college graduates have also fallen into the ranks of the long-term unemployed. They represent 15.9% of the long-term jobless, compared with 14.9% of all unemployed workers. Those with high school degrees who haven't been to college comprise 40.7% of long-term unemployed, compared with 37.8% of all unemployed workers.

These are the numbers for current graduates, of course. Our oldest would be in the Class of 2021 and our youngest would be class of 2025, assuming 12 uninterrupted years of schooling, and advancing accordingly. Right now, the jobs deficit will impact them according to how it impacts us, and how it impacts state education funding. The projections for the class of 2010 are not inspiring.

Commencement is supposed to be filled with hope, but for the class of 2010, these are grim times. Over the past year, the unemployment rate for college graduates under age 25 has averaged 9.1 percent. For the roughly half of high school graduates under 25 and not in college, the average is 22.8 percent.

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.

This is how an economy shrinks, or it's at least one way an economy shrinks, and permanently at that. For these graduates, the scenario looks pretty much like what Austan Goolsbee described in a 2006 New York Times column.

And as economists have looked at the economy of the last two decades, they have found that [Stanford Business School economist] Dr. [Paul] Oyer's findings hold for more than just high-end M.B.A. students on Wall Street. They are also true for college students. A recent study, by the economists Philip Oreopoulos, Till Von Wachter and Andrew Heisz, "The Short- and Long-Term Career Effects of Graduating in a Recession" (National Bureau of Economic Research Working Paper 12159, April 2006. http://www.columbia.edu/~vw2112/papers/nber_draft_1.pdf), finds that the setback in earnings for college students who graduate in a recession stays with them for the next 10 years.

These data confirm that people essentially cannot close the wage gap by working their way up the company hierarchy. While they may work their way up, the people who started above them do, too. They don't catch up. The recession graduates who actually do catch up tend to be the ones who forget about rising up the ladder and, instead, jump ship to other employers.

Today's graduates are competing with workers like George from the previous post, who have been laid off after years of work, only to find themselves in such a dismal market that they are willing to take the entry-level jobs that graduates have traditionally sought, even if it means doing the same work for significantly less money, to support a significantly reduced standard of living. Graduates then, compete with high school students for the kind of positions that were summer jobs for the latter.

It sounds vaguely like something I read recently.

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 griding 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.

(It's worth noting that London was writing fifteen years after the events of "Bloody Sunday" and the unemployed marching on Trafalgar Square, as well as the media attention generated by the "Jack he Ripper" murders brought the griding poverty of the East End into sharp focus. London writes more than a decade after reform efforts inspired by those events. But he also wrote before the government's National Insurance Act of 1911, establishing sickness benefits for workers and unemployment benefits for some trades where periodic unemployment was common.)

Perhaps we are yet a ways from Victorian era disparities and the levels of unemployment but where we are headed if current trends continue looks pretty grim— or pretty great, depending on your outlook.

Certainly the picture painted by Don Peck in his March 2010 Atlantic article, "How a New Jobless Era Will Transform America." suggests we're on our way.

There is unemployment, a brief and relatively routine transitional state that results from the rise and fall of companies in any economy, and there is unemployment—chronic, all-consuming. The former is a necessary lubricant in any engine of economic growth. The latter is a pestilence that slowly eats away at people, families, and, if it spreads widely enough, the fabric of society. Indeed, history suggests that it is perhaps society’s most noxious ill.

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 world that Peck portrays, in an article to dense with information to quote without practically reposting it in full, is hardly a future many people would wish for themselves, their children, or the children's children. He writes of an economy in "a hole that is more than 10 million jobs deep," which is the number of jobs required to get us back to even 5% unemployment. That we could do in two years if we returned to double the 1990s rate of job creation.

That may be a conservative estimate. But it means that meager increases in monthly employment numbers — that are considerably reduced when taking factors like seasonal employment, etc., in to consideration — won't get us there. Not even close.

Instead of addressing the root of the economic crisis ( and the deficit, by the way) we opt for short term, band-aid, solutions that can't begin to address the entirety of the challenge before us.

Contrary to conventional wisdom, we are not digging ourselves deeper into an economic hole if we spend to create jobs, extend unemployment benefits, and keep people in their homes, etc. We are digging ourselves deeper by steadfastly refusing to do so. And that's merely perpetuating the current status quo, which will make playing catch-up unlikely, at best.

New jobs will come open in the U.S. But many will have different skill requirements than the old ones. “In a sense,” says Gary Burtless, a labor economist at the Brookings Institution, “every time someone’s laid off now, they need to start all over. They don’t even know what industry they’ll be in next.” And as a spell of unemployment lengthens, skills erode and behavior tends to change, leaving some people unqualified even for work they once did well.

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.

Innovation will continue to be limited, because we will eventually cease to support the things makes innovation possible. Kids who get to school hungry, stay hungry, and are crowded into classrooms of 30+ or more, as school systems layoff teachers and even close some schools don't usually grow up to be innovators, or even able to support as workers the new markets and fields innovation may create. Nor do parents whose biggest worry is where they money to buy groceries and pay for utilities is going to come from have time to spend reading to their kids or helping with homework. They certainly can't vouch for the importance of education by example. If the parents even managed to earn a college degree where will it have gotten them?

If those parents are todays graduates, Peck's article makes that clear.

Todays graduates will likely earn less. According to a Yale study college graduates from 1979 to 1989, cited by Peck, those entering the workforce during a recession earn about 25% less than those who were lucky enough to start their careers during "boom times," and they never caught up. Five, 10, and even 25 years later recession graduates were still earning 10% less than the "boom timers." They were also less likely to work in professional occupations, and though they remained in their job for longer than average, that impeded advancement because starting in lower positions colored supervisors' perceptions of their potential, and thus they were less likely to move up.

The picture Peck paints only gets bleaker.

When experienced workers holding prestigious degrees are taking unpaid internships, not much is left for newly minted B.A.s. Yet if those same B.A.s don’t find purchase in the job market, they’ll soon have to compete with a fresh class of graduates—ones without white space on their résumé to explain. This is a tough squeeze to escape, and it only gets tighter over time.

Strong evidence suggests that people who don’t find solid roots in the job market within a year or two have a particularly hard time righting themselves. In part, that’s because many of them become different—and damaged—people. Krysia Mossakowski, a sociologist at the University of Miami, has found that in young adults, long bouts of unemployment provoke long-lasting changes in behavior and mental health. “Some people say, ‘Oh, well, they’re young, they’re in and out of the workforce, so unemployment shouldn’t matter much psychologically,’” Mossakowski told me. “But that isn’t true.”

Examining national longitudinal data, Mossakowski has found that people who were unemployed for long periods in their teens or early 20s are far more likely to develop a habit of heavy drinking (five or more drinks in one sitting) by the time they approach middle age. They are also more likely to develop depressive symptoms. Prior drinking behavior and psychological history do not explain these problems—they result from unemployment itself. And the problems are not limited to those who never find steady work; they show up quite strongly as well in people who are later working regularly.

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.

But keep in mind that this is the world that at least some conservatives are rooting for and hoping for. A world where more people are divorced from the economy. It's their post-government utopia, a Mad Max Beyond The Thunderdome fantasy that fuels their fuels their obstruction of just about anything that might help Americans who being endlessly squeezed in this economy. If they can just fend off any possible remedies long enough, things will fall apart even more, and perhaps finally past hope of repair.

In other words, the total disintegration of the economy, the middle class, and really even our entire social structure is something to cheer for. And if long-term unemployment gets us there, so be it. But don't take my word for it.

At almost the same time Peck published his article on how long-term unemployment could "warp our politics, our culture, and the character of our society for years," conservative blogger and columnist Reihan Salam wrote — for Time magazine's "10 Ideas For The Next 10 Years" — a column about how much he looked forward to this disintegration and the rise of what he called "The Drop-Out Economy."

Imagine a future in which millions of families live off the grid, powering their homes and vehicles with dirt-cheap portable fuel cells. As industrial agriculture sputters under the strain of the spiraling costs of water, gasoline and fertilizer, networks of farmers using sophisticated techniques that combine cutting-edge green technologies with ancient Mayan know-how build an alternative food-distribution system. Faced with the burden of financing the decades-long retirement of aging boomers, many of the young embrace a new underground economy, a largely untaxed archipelago of communes, co-ops, and kibbutzim that passively resist the power of the granny state while building their own little utopias.

Rather than warehouse their children in factory schools invented to instill obedience in the future mill workers of America, bourgeois rebels will educate their kids in virtual schools tailored to different learning styles. Whereas only 1.5 million children were homeschooled in 2007, we can expect the number to explode in future years as distance education blows past the traditional variety in cost and quality. The cultural battle lines of our time, with red America pitted against blue, will be scrambled as Buddhist vegan militia members and evangelical anarchist squatters trade tips on how to build self-sufficient vertical farms from scrap-heap materials. To avoid the tax man, dozens if not hundreds of strongly encrypted digital currencies and barter schemes will crop up, leaving an underresourced IRS to play whack-a-mole with savvy libertarian "hacktivists."

Work and life will be remixed, as old-style jobs, with long commutes and long hours spent staring at blinking computer screens, vanish thanks to ever increasing productivity levels. New jobs that we can scarcely imagine will take their place, only they'll tend to be home-based, thus restoring life to bedroom suburbs that today are ghost towns from 9 to 5. Private homes will increasingly give way to cohousing communities, in which singles and nuclear families will build makeshift kinship networks in shared kitchens and common areas and on neighborhood-watch duty. Gated communities will grow larger and more elaborate, effectively seceding from their municipalities and pursuing their own visions of the good life. Whether this future sounds like a nightmare or a dream come true, it's coming.

Conservatives still want to turn back time, and Salam apparently wants to go all the way back to the city-state model.

Here is the conservative fantasy: the dissolution of the government along with the supports and services it provides. (The longstanding goal of annihilating the Dept. of Education is is clearly achieved in this scenario.) While it's not out of the question that Salam's "communes, co-ops, and kibbutzim" (in a jarring appropriation of yesterday's liberal phenomena in support of today's right wing rhetoric and agenda) might provide, by design they won't have the breadth or reach of that the government — our government — has (nor can they be required not to discriminate). "The Beast" is finally starved to death.

What Peck details and Salam skips over is the "collateral damage" — the millions of chronically unemployed Americans, the probably permanent consequences of chronic un-employment, permanently lowered standards of living, and generations starved of the possibilities and denied the broadened horizons that their parents and great-grandparents had — that it will take to get us there. What Peck documents and Salam almost celebrates is the end of upward mobility and the new reality that as downward mobility becomes the norm, most of us will be lucky if we can simply stay put.

Dream or nightmare, Salam is right. It's coming. Whether you believe it's where we're headed or where we should end up — whether it's a crisis or a "correction" — the fastest way to get there is the same: simply do nothing.

That's the future scenario that worries me most where our children are concerned. It's a crisis that can still be averted if our government takes action. But for some conservatives its a necessary and desirable "correction," and one can still has a chance if they can forestall government action. It depends on whether you see long-term unemployment and its long-term consequences as a crisis or a "correction."

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