One of the distinctive features of the Great Recession has been the enormous number of people who have been out of work for months on end. Almost 45 percent of today’s unemployed workers have been without a job for at least 27 weeks. In no other downturn since World War II did the share exceed 26 percent.
For many of these long-term unemployed, the financial and psychological damage will last for years. For most other workers, however, the situation has had a perverse, and mostly overlooked, silver lining.
Unemployment has been concentrated among a surprisingly small number of people, given how deep the recession has been. The nation’s pool of jobless workers has not been constantly changing. Instead, it’s been relatively stable – mostly because the hiring rate of new workers plunged in 2008 and still has not recovered. The drop in hiring has actually been steeper than the rise in layoffs.
Compare the current slump with that of the early 1980s, which was similar in severity. Over the course of 1980, 18.1 percent of the labor force was unemployed at some point. In 2008, the first year of this slump, only 13.2 percent was, according to the Labor Department’s most up-to-date data. That number surely rose in 2009, but it is unlikely to have come close to the 1982 peak of 22 percent.
If anything, the slowdown of the recovery in the last few months has made the recession even more concentrated. It has put off the day when the job market will be strong enough to re-employ many of the long-term jobless. But inflation has fallen to zero, which helps the purchasing power of everyone fortunate enough to have a job.
Given that the economy seems to have entered this new phase – a new slog – I wanted to use this week’s column to sketch an updated portrait of the economy. The highlights follow.
WAGES ARE RISING AGAIN
In the deep economic slump of the mid-1970s, the average hourly pay of rank-and-file workers – who make up four-fifths of the work force – fell 6 percent, adjusted for inflation. In the early 1980s, the average wage fell 3 percent. Even in the mild 1990-91 recession, it fell almost 2 percent.
But since this recent recession began in December 2007, real average hourly pay has risen nearly 5 percent. Some employers, especially state and local governments, have cut wages. But many more employers have continued to increase pay.
Something similar happened during the Great Depression, notes Bruce Judson of the Yale School of Management. Falling prices meant that workers who held onto their jobs received a surprisingly strong effective pay increase.
This time around, nominal wages – the numbers people see in their paychecks – have risen throughout the slump, as companies have passed along some of the impressive productivity to their (remaining) workers. Meanwhile, inflation has been almost non-existent, except for parts of last year, when real wages did briefly fall.
Obviously, real wages could begin falling again if inflation picks up or more employers cut pay. And many workers are already struggling with big debts and diminished 401(k) accounts. Still, the contrast is pretty stark. The typical unemployed person has been out of work for six months. The typical worker has received a raise.
THE HEARTLAND IS DOING OK
The hardest-hit parts of the country have been manufacturing regions, like Michigan, Ohio and Rhode Island, and areas that had huge housing bubbles, like California, Florida and Nevada.
The least affected area is a band running from the Dakotas and Minnesota down to Texas and Louisiana. Continuing the concentration theme, this band includes some of the manufacturers and other businesses that have emerged from the recession the quickest.
This pattern probably helps explain why the Senate has taken such a leisurely approach to helping the economy in recent months. Many of the states in the best shape also have small populations and, as a result, outsize political power. In Nebraska, where the unemployment rate is 4.8 percent, there is one U.S. senator for every 900,000 people. In Florida, where the unemployment rate is 11.4 percent, there is one senator for every 9 million people.
THE SLUMP HAS BECOME MORE WHITE COLLAR
The first two years of the downturn were disproportionately blue collar. In 2008 and 2009, the construction industry shed an incredible 25 percent of its jobs, and manufacturing lost 16 percent.
This year has been different. Manufacturing – especially of so-called durable goods, like computers and machinery, many of which are purchased by companies – has been adding jobs.
Many white-collar fields, meanwhile, are losing jobs: state and local governments, publishing, telecommunications. Retailers have added jobs, but more slowly than the rest of the economy, as consumer spending has remained tepid.
This shift from blue to white collar is the main reason the downturn has also become more female. In a turnabout from the previous two years, male employment has risen by almost 1 million this year, while female employment has fallen by 300,000. For similar reasons, employment has risen this year among people who never attended college and fallen among those who did.
Overall, though, the downturn has still exacted a much harsher toll on the less educated. The unemployment rate for college graduates is still just 4.5 percent, and the gap between their pay and everyone else’s is larger than it has ever been. For most college graduates, the Great Recession has not lived up to its name.
And there is good reason: In today’s high-tech, global economy, educated workers remain very much in demand. They make their companies more productive and the American economy more competitive. They expand the size of the economic pie.
If you have doubts, take a look at the last century. In the early 20th century, Europe decided that a high school education would be wasted on the masses. The United States instead made high school universal, and its newly skilled work force helped build everything from the hugely productive factories of the Midwest to modern Hollywood to the world’s most innovative retail and technology sectors.
Over the long term, the best response to the current downturn, by far, would be for the country to regain the global lead in education.
Of course, that will take years, maybe decades. It will not come soon enough to help the seven million people who have been out of work – and are still actively looking for work – for six months or more.
They will need a different kind of help. Maybe it’s a new kind of jobless benefit, like a lump-sum payment that is fairly generous but still gives them an incentive to find new work as soon as possible. Or maybe it’s a new kind of retraining program that, unlike so many past failures, lives up to its promises.
Whatever it is, it will need to be something more innovative than the current safety net – which was, after all, created for a very different kind of downturn.