Why Economic Slumps Are Serious

The essential trouble is that most people who find themselves affected by a long slump, such as the one we have now, will never recover to where they might have been without it. They suffer individually, and because they do, the entire economy suffers in both the short and long terms.

Workers who lost a good job face a period of unemployment. In the present slump, which will soon enter its sixth year, with more predicted, that period is frequently so long that they have exhausted their unemployment insurance benefits, leaving them with no income at all.

If a laid-off worker decides to hold out for a decent job, she will lose the income she would have otherwise earned. For example, if her income was $80K, she will lose $320K if she doesn’t find a similar job within four years. But the longer she goes without work, the less desirable she becomes to the market. In high tech fields, two years is enough to put her completely out of touch with the field, and she becomes undesirable as an employee.

Employers seem to conclude that
there is something suspicious
if a worker has been unable to find a job
for more than a brief period.

But the same thing happens in less exalted fields. Employers seem to conclude that there is something suspicious about a worker who has been unable to find a job for more than a brief period. Good workers have been demoralized by finding less qualified workers hired instead of themselves after such a period.

The alternative is to take a bad job just to have one, although even bad jobs are not so readily found. Some people find something like the jobs Walmart offers. Such jobs offer the lowest pay the employer can get away with, which is not enough to provide even subsistence. Walmart and other large corporations then juggle the worker’s hours so that no benefits or health insurance are available to them. The goal is to disallow them working enough that benefits are required by law. I call that the McDonald effect.

Average pay at Walmart is $9.86/hr, which would mean about $20K/yr for full-time work, before management’s money-saving manipulations. Compare that to Costco, where average pay is $17/hr, or $35K/yr, and includes good benefits.

Unfortunately, working at a bad job may be just as bad as being unemployed, as far as potential employers are concerned. And the skilled worker who works in a job that doesn’t use his talents risks the same danger that the unemployed expert risks: his skills will be lost or become obsolete.

But wait. Wasn’t the recession over in 2009, when Wall Street declared that everything was OK now, and began paying themselves $10M bonuses again? Maybe as far as they are concerned, but not for the rest of us.

…even bad jobs are not so readily found.

New college graduates may be in a worse position than ever. The skyrocketing cost of college has forced most students to take out loans in order to graduate. The average debt of a college graduate is now $27K. Some have debt that tops $100K. Think of that in comparison to the $20K total annual earnings of an average Walmart worker. Now consider what has happened to far too many graduates: they have become slave debtors who can find no work that would allow them to pay off their debt. Some have found that holding even three bad jobs does not allow them to recover.

This situation is only getting worse, as college costs continue to rise and income for most people continues to slip. Students and their parents are less able to pay up front for college, the low level of employment drags on, and Congress fails to provide any relief. Even if things got bad enough that one had to declare bankruptcy, that does not wipe out college debt.

The “college premium” is supposedly what makes going to college economically worth while. The higher your level of scholastic training, the higher your lifetime earnings. The problem with this statistic is that we have not yet calculated the lifetime earnings of recent graduates. If a person graduates with debt, but is unable to find work in her field, she still has to pay off that debt, and she may be doing it on a modest wage. So she has lost four years of income during college, and maybe another four doing low-pay work. What’s more, she is at risk for her future employment, as I described above. For such persons, it seems to me likely that the college premium will be sharply reduced, so that it becomes questionable whether college is economically worth it.

It becomes questionable whether college is economically worth it.

Yet another factor, perhaps the most important one, is the false belief that all people become unemployed because their skills are no longer viable. While there is some truth to this, the fact is, there are more qualified workers in many fields than there are jobs. To me this means the entire working world is in need of an overhaul. We must find ways for people to support themselves with considerably fewer than the standard forty hours per week, thus providing jobs for more people.

It’s almost surprising that there are still people who cannot see that the US is sliding downhill because of the slow degrading of wellbeing of virtually everyone but the rich over the past several decades. The current economic recession is likely to last a lot longer. There has been no serious attempt by politicians to bring this mudslide to a stop, because they have been too busy looking after the needs of the rich. There is debate whether the US is even a member of the most advanced nations any more.

The US employment rate, which is a more realistic measure than the unemployment rate for various reasons, has not been this low since the recession of the early 1980s. As of 6 June 2013, the rate is only 58.6%, as opposed to about 65% in 2000. The difference is equal to the entire population of Madagascar or Sri Lanka.

It will get worse. The population increases by 200,000 each month. Each year, over 1.5M people earn baccalaureate degrees, so an average of about 128,000 graduates will be added to the total of those looking for work each month. Therefore, we need 325,000 new jobs each month, and we’re getting about half that. If these numbers are remotely close to correct, the only possibility is continued slow degrading of American life, with all the suffering and difficulties it will bring.

We need 325,000 new jobs each month,
and we’re getting about half that.

Austerity in public policy is still popular with conservative Republicans. That means cutting essential government services (and people) and paying down debt instead of finding ways to generate employment. That’s going south when we need to go north. But the raw fact of its complete failure to correct the downward slide either here or in the EU is become glaringly apparent even to them. But the hard-core austerians will not admit it. Perhaps soon we will consider the measures we failed to fully implement when they might have done the most good, meaning the fiscal stimulus that improved employment every month for 14 months, until it ended, too early, throwing us into the stagnant economy we’ve had since.

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