Unemployment Scars Likely to Last for Years presents a troubling picture of the U.S. long term structural unemployment problems facing our society:
"The U.S. job market is showing signs of a sustained recovery. But the country's prolonged struggle with unemployment will leave scars that are likely to remain for years, if not generations.
The latest labor-market snapshot, out Friday, gave cause for continued, if tepid, optimism. U.S. employers added 200,000 jobs in December, and the unemployment rate ticked down to 8.5%, its lowest level since early 2009. . . .
But economists gathered here (Chicago) for the American Economic Association's annual convention took a longer and generally dimmer view. Even if recent progress continues, the recession already has had a lasting effect on a generation of workers. Worse, the crisis has laid bare problems in the U.S. labor market that won't quickly recover when the economy eventually rebounds. And the longer that unemployment remains high, the greater the risk that it will create structural problems that will endure.
The economists here, mostly academics, are studying the causes and effects of the jobs crisis from different angles, and they frequently disagree. Nonetheless, a few common themes emerge.
Long-term unemployment may be a bigger problem than high unemployment. Americans have been understandably frustrated by the slow pace of job growth. But economists say much of that slowness is explained by the weak economic growth since the recession ended more than two years ago. In that sense, the problem isn't the "jobless recovery" but rather that the recovery itself has been so weak. If the recovery gains steam—as some economists believe has been happening in recent months—the growth in jobs should pick up as well.
Unprecedented rates of long-term unemployment could threaten the economy's recent gains. Some 5.6 million Americans have been out of work at least six months, 3.9 million of them for a year or more. Research shows that the longer people are unemployed, the less likely they are to find jobs. Economists aren't sure why—to what degree it's because workers' skills deteriorate, or because they find ways to cope and give up looking for work, or whether the stigma of being unemployed for so long makes companies unlikely to hire them—but the effect is the same: Many of the people out of work the longest likely will never work again.
The risk, economists say, is that the U.S. will develop an underclass of semipermanently unemployed workers, with severe consequences for productivity, public finances and even social stability. Europe, which faced a similar problem in the 1980s, is still dealing with the consequences. . . .
Many problems predated the recession. The recession caused a dramatic rise in unemployment, but it also revealed deeper challenges that had been brewing for decades. By a wide range of measures, the U.S. labor market has over the past two decades lost much of the edge it enjoyed over other developed countries. The big gains in education in the early 20th century have slowed. Americans are moving less frequently and changing jobs less often, making the job market less flexible. And most critically, a smaller share of Americans are working. The labor force participation rate—the percentage of adults who are working or looking for work—peaked in 2000 and has been falling for more than a decade."
Later the article concludes in gloomy fashion:
""There are people who are going to bear scars for the rest of their careers," said Henry Farber, an economist at Princeton University.
For the broader economy, the stakes may be even higher. The long-term decline in manufacturing has eroded a major source of stable jobs that pay well. The construction boom of the mid-2000s helped offset those losses, until the housing market collapsed and took home builders with it. And the slow recovery has put a premium on productivity, giving companies incentives to invest in technology that lets them produce more with fewer workers—a trend that has spread from manufacturing into the service sector.
Much of the recent job growth, meanwhile, has come in the health-care and hospitality sectors, which generally employ many low-skilled workers at low wages. Those jobs help shrink the unemployment rolls, but they don't replace the middle-class jobs that have been lost in the manufacturing and construction sectors.
"A huge issue is going to be the quality of jobs and whether we'll have a type that generates a shared prosperity," Mr. Katz said.
The challenge facing the country, then, is not just putting people back to work, but helping to retrain and rehabilitate the long-term unemployed, reversing a multidecade stagnation in the labor market, and finding a new source of jobs to rebuild the middle class. No one in Chicago had any easy solutions."
Let's sum up.
U.S. manufacturing employment has been on the decline for many years. After the construction bubble burst, there weren't enough high paying construction jobs remaining to substantially fill the hole left by the reduction in manufacturing employment.
In the meantime, baby boomers continue to retire at high rates, and while people are living longer, they are also leaving the workforce earlier. A negative financial trifecta.
In the active workforce, the unemployed are staying unemployed longer, and young people aren't finding jobs easily.
Meanwhile, global competitors are stronger and more plentiful than ever as many new low cost competitors join the fray.
In the U.S., we sailed through both the agricultural and industrial revolutions with strong and sustained economic and jobs related growth.
While we don't know exactly what the information economy will bring us, we do know that our inadequate educational system needs to pick up the pace. We also know American based competitors must adjust to global competition quickly as well.
We continue to promise and pay entitlement benefits to the elderly and others that aren't being funded by current taxes. New debt, both funded and unfunded, is being piled on top of existing debt. Something has to give.
The more we tax the productive working segment of society to pay for the non-productive elderly and others, the less competitive we'll be as a nation. That also means our future tax raising capability will be diminished.
In addition, the more entitlements for the elderly and others that we promise and pay, the more taxes we'll have to raise, both now and in the future. To repeat, something has to give.
Increased government taxes and regulations will reduce economic growth. Ever growing entitlement spending will as well.
As a nation, we've never before been faced with such a combination of complex and difficult issues to solve. How to grow the economy sufficiently and pay for an unaffordable welfare state at the same time have not been problems for previous generations. But they are now.
In other words, how this generation of Americans addresses the issues of achieving strong and sustainable economic growth led by the private sector will determine our citizens' and country's future prosperity.
It's long past time for a serious national debate about which tradeoffs we'll choose to make as a society. And our choices won't be easy or painless ones either. But only after those required decisions are made will our future path be clear.
Here's hoping we make the right choices on behalf of future generations of Americans. They're counting on us.
Thanks. Bob.
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