The price of U.S. recession is paid in jobs

WASHINGTON Mon Aug 3, 2009 4:24pm EDT

1 of 2. Unemployed medical engineer Jim Lynch, 49, listens during an orientation meeting at the Michigan Works office in Lansing, Michigan, July 22, 2009.

Credit: Reuters/Rebecca Cook

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WASHINGTON (Reuters) - Long after President Barack Obama's first term ends in 2013, millions of U.S. families will still be paying the price for the recession.

From auto workers in Detroit too old for retraining, to Hispanic migrants in Arizona with no homes to build, to new college graduates competing with experienced workers for scarce jobs, more and more people are facing long-lasting unemployment.

Since the recession began in December 2007, the jobless rate has climbed 4.6 percentage points to 9.5 percent, the biggest jump since the Great Depression. Worse, the mean duration of unemployment is now almost 6 months, the highest on record.

Although Obama frequently points out he inherited the recession from his predecessor, George W. Bush, the fallout will frame his legacy, presenting a quandary for a president elected on a slogan of "Yes We Can."

Unless Obama figures out how to repair the job market, the can-do attitude sparked by his election may be replaced by despair, leaving deep economic and social scars that undermine his political goals.

GONE FOR GOOD

Joblessness typically rises during recessions as weak demand prompts companies to cut production and jobs. Normally those workers are rehired once the economy recovers.

For example, in the back-to-back recessions of the early 1980s, the jobless rate peaked at 10.8 percent. Thanks to a strong recovery, that receded to 8.3 percent one year after the downturn ended.

This pattern has changed in recent years and jobs lost in recessions are much slower to return, if they come back at all. In the 2001 slump, unemployment peaked 19 months after the recession ended, and it was another three years before the jobless rate came close to pre-recession levels.

In the current recession, economists say high unemployment is likely to persist at least another four years. In Michigan, home to the battered U.S. auto industry, nearly 13 percent of jobs may be wiped out, according to research firm IHS Global Insight, and the state's labor market probably won't return to its pre-recession strength until after 2015.

Alvin Gains, 56, a former worker at a Chrysler plant in the Detroit suburb of Sterling Heights, has given up on finding work in his home state and is leaving for Texas.

He left Michigan once before, when he was laid off by Chrysler in 1979. This time he doesn't expect to come back. "This downturn is so much worse, there's no work for people here," he said.

The rise in long-term unemployment is a puzzle for economists. The Congressional Budget Office studied it in 2007 and concluded merely that the shift was "hard to explain."

But what is clear is the longer people like Gains remain out of work, the worse their chances get. Skills become outdated, big resume gaps put employers off, and younger people step in.

LOWER LIVING STANDARDS

Retraining is the usual prescription, but pay and benefits in new careers are often far worse. Ex-auto workers who once made $28 an hour can now expect more like $9.

"The hardest thing for many auto workers who've been doing the same job for 25 years or so to accept is that instantly, permanently, their standard of living has been ratcheted down 80 percent," said Douglas Stites, chief executive of Capital Area Michigan Works, a career center in Lansing, Michigan.

The housing crisis has worsened the situation for job seekers because areas with high unemployment also have high foreclosure rates, making it hard to sell up and move on.

Still, when local prospects are grim, sometimes the only choice is to leave. Outplacement consultancy Challenger, Gray & Christmas said that 18 percent of those finding employment in the second quarter relocated, up 14 percent from the previous quarter and the highest rate since 2006.

The pain of joblessness extends well beyond the workers themselves, hitting their families and entire communities as home foreclosures mount, neighborhoods decay and crime rises.

"I see long-term unemployment as a real, treacherous disease. And it kills. It kills," said Boston University sociologist Thomas Cottle, ticking off side effects from stress and hypertension to depression, alcoholism and drug addiction.

Even the rate of dental cavities goes up as the unemployed tend to put off routine medical care, said Cottle, author of "Hardest Times: The Trauma of Long Term Unemployment."

He worries that the recession is slowly eroding belief in the American ideal that if you work hard enough, you will get ahead. The longer unemployment endures, the more people will feel abandoned and betrayed, he said.

ANGRY VOTER SYNDROME

In many ways, Obama embodies the American Dream. He speaks of how his mother and grandmother sacrificed to provide him with opportunities they never had.

With unemployment far higher than most economists expected when he took office, Obama will need to convince Americans that the dream is still attainable.

Two groups hit hard by unemployment -- unionized labor and college students -- were also among Obama's strongest supporters in his presidential campaign.

Jason Harper, 22, can't find a job in his chosen field, advertising, despite a Princeton degree and more experience than most people his age. "I thought that it would be a bit easier than it is to find a job," he said. He's now looking for advertising jobs in Germany.

While younger people still support Obama, the longer they go without jobs commensurate with their expensive educations, the less happy they will be.

A big test for Obama comes next year, when most members of Congress face mid-term elections. High unemployment breeds angry voters, and a normal response is to toss out the incumbent.

Obama's Democrats are unlikely to lose their big majorities, particularly in the Senate, where 18 of the 34 senators up for reelection are Republicans, but his party's power may be diluted.

He is already discovering that one of his top agenda items, healthcare reform, is a tough sell, and a weakened Democratic party could make it even tougher to rally support for his agenda.

SILVER LINING?

When Obama himself comes up for reelection in 2012, the job market will probably still be hurting.

Global Insight estimates that, in more than half of the 50 states, it will be 2013 or later before the number of jobs gets back to pre-recession levels.

But there is hope on parts of the horizon.

The government's $787 billion stimulus package will bring construction jobs, says Joseph Brusuelas, an economist at Moody's Economy.com. That would be welcome news for states such Arizona, Florida and Nevada, where the housing bust has hit employment hard.

Christian Aguilar is one of the construction workers hit by the bust. He thrived painting new homes across the sprawling Phoenix valley until the work dried up. "They laid me off for two weeks, then that stretched out to a month, now I haven't worked since last August," he said. Now he touts for work at a day labor center in Phoenix, waiting for construction work to pick up again.

Another group with prospects is out-of-work Wall Street financiers, who Brusuelas sees finding a niche at boutique investment banks or in developing financing for the start-up companies that sprout in bad times.

He likened their situation to defense industry workers in California in the early 1990s who found jobs in unlikely places such as Hollywood animation studios and Silicon Valley.

Brusuelas also argues that firms overdid the job cuts in the panic of the fall of 2008 and will need to bring back workers quickly.

But for one group, the hard-to-employ older men from the auto industry, economists agree: Those jobs are gone and they are not coming back.

(Reporting by Emily Kaiser; Additional reporting by Nick Carey in Lansing, Michigan, Tim Gaynor in Phoenix and Wendell Marsh in Washington; Editing by Eddie Evans)

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