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07.10

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07.10

The Jobless Recovery — Are We There Yet?

By George F. McClure

Short answer: Probably not. Since the last business peak, 8.4 million jobs have been lost in the United States. In May, there were 15 million unemployed.

The official unemployment rate ignores workers who have given up looking for work, those with part-time jobs who can’t find full-time jobs, and workers who settled for work they found outside their skill set.

Source: U.S. Department of Labor Bureau of Labor Statistics [May 2010 release]

Including those “discouraged” workers the latest total for un- and under-employed is 16.6 percent of the civilian workforce. And the average duration of unemployment is 34.4 weeks; the median is 23.2 weeks. The number out of work for more than 27 weeks is 6.7 million, or 46 percent of the unemployed.

A parallel with the Great Depression is the fact that this is a global downturn.

Globally, the jobless rate is the highest ever. 212 million, or 6.6 percent of the global workforce are unemployed at the end of 2009. [1]

The onset of the current recession is measured from December 2007, by the National Bureau of Economic Research. [2] [3]

Since defining the end is a looking-back exercise, there is no precise measure yet. Inventories have been drawn down and rebuilding has started. The Purchasing Manager Index is above 50 percent for the United States. There are similar indices for the G-8 countries. [4]

Since consumer spending contributes about 70 percent to Gross Domestic Product, lack of both consumer confidence and income drags down a recovery. In June the survey of consumer sentiment rose to the highest level in more than two years. [5] But unemployment benefits are running out so more belt-tightening is in prospect. Two bills to extend benefits past 99 weeks (Tier 5) failed to pass. Without the extension, 15 million Americans will exhaust their unemployment benefit by the end of the year. [6] The first of these bills had a price tag of $140 billion, including a variety of extensions of tax breaks (including the R&D tax credit) and the sentiment was that it should be paid for. [7] One Tennessee worker, whose benefits have already expired recounted that the jobs — with ITT, Magnavox, Siemens AG — had moved to Mexico. Since the premiums for unemployment insurance are related to the layoff experience of the employers, the increases will deter further hiring by smaller employers.

Unemployment benefits typically won’t pay for the home mortgage. Ten percent of mortgaged homeowners missed a payment in the first quarter — a new record. Twenty-five percent of mortgages had balances higher that the current value of the home. There are five unemployed workers for every job opening. [8]

The Greek debt crisis erupted after the U.S. economy was in decline. It resulted in loss of confidence in the euro. National debt, put at €300 billion ($413.6 billion), is bigger than the country's economy, with some estimates predicting it will reach 120 percent of gross domestic product in 2010. The country's deficit — how much more it spends than it takes in — is 12.7 percent. [9]

Spain, with an unemployment rate of 19.7 percent in April, is close behind, having announced a 5 percent pay cut for all government employees in response to a downgrading of its sovereign debt. British prime minister David Cameron has stated that, among the Group of 20 European economies, the percent of British debt to GDP is exceeded only by that in Ireland.

Greece’s sovereign debt rating has been downgraded to junk status. Spain has lost its AAA rating and the UK could lose its AAA status if its deficit isn’t addressed. Japan’s outlook has been cut to negative and rating agencies have even warned the United States. [10]

Few economists had predicted the banking crisis when it was looming. One who did was Nouriel Roubini, sometimes called Dr. Doom. Nowadays he prefers to be called Dr. Realist. He worries now that there is political gridlock in the United States that prevents the government from making tough decisions. Without a willingness to have spending cuts or tax increases the fiscal deficit may be monetized, ultimately producing inflation. [11]

One good sign is that China has indicated a willingness gradually to increase the value of the yuan (or renminbi) against the dollar. [12] But while this will increase the cost of Chinese imports it should not be seen as an automatic increase for U.S. exports that would increase U.S. jobs.

The European economic crisis means that we cannot expect larger imports there from the United States any time soon. About 23 percent of U.S. exports go to Europe. Weakness there will adversely affect the U.S. recovery. [13]

The oil spill in the Gulf of Mexico will increase unemployment in that region while making people apprehensive about increases in oil prices (now widely expected to climb from under $80 to $100 per barrel by year end). A six-month moratorium on deep-water drilling there was called insane by one of the eight experts from the National Academy of Engineering, but that may stand as government policy. If so, it will have a further depressive effect on the economic recovery. The 33 deep-water drilling rigs there, that command a fee of some $500,000 per day, will be re-deployed to Brazil or Africa and be unavailable for a resumption of drilling exploration in the Gulf. Likewise, the rig workers will move elsewhere or seek a different field of employment. There are 21,000 workers involved, on deep-water exploratory drilling rigs or supporting them. [14]

Economic recovery will be underway when the unemployment rate shrinks significantly. For the United States, it could take 10 million new jobs to get back to a 5 percent unemployment rate. That could well take a decade. There will be social upheaval along the way, including young adults continuing to live with their parents, stresses on marriages, a generation of college graduates without waiting jobs that can use their knowledge and skills, and a slow recovery for the overblown housing market as delayed marriages and family formations take their toll. The USDA reports that the cost of raising a child to age 17 (not including college costs) was $292,000 in 2008. [15]

When the first such report was issued in 1960, day-care expense was negligible since there were few two-income families.

For an overall perspective, see http://www.theatlantic.com/magazine/archive/2010/03/how-a-new-jobless-era-will-transform-america/7919/

References

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George F. McClure is Technology Policy editor for IEEE-USA Today’s Engineer and the IEEE Vehicular Technology Society's representative to IEEE-USA's Committee on Transportation and Aerospace policy.

Comments may be submitted to todaysengineer@ieee.org.