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Unemployment in America: the forgotten economic crisis


Chris Weinberg

By

February 24th, 2014


Most of Washington’s economic debate is over the long-standing budget deficit and the national debt, when the focus for policymakers should be on the long-term crisis in unemployment.


This article was featured as part of Equilibrium 2013, our annual print publication.

President Barack Obama assumed office in 2009 during a crisis of epic proportions, particularly demonstrated by the skyrocketing unemployment rate in the wake of the Global Financial Crisis.However, nowadays it seems that the second-term President’s policy focus is elsewhere: negotiating with Congressional Republicans over a long-term solution to the budget, comprehensive immigration reform and gun violence. While it may seem that the employment market is on the road to recovery, along with the broader economy, a deeper look at the data, disconcertingly, suggests otherwise. As of the July jobs report, released monthly by the Bureau of Labour Statistics (BLS), unemployment has fallen to 7.4%, down from the disturbingly high rates of around 10% that plagued the early years of Obama’s term. However, as has been discussed at length in economic literature, the snapshot unemployment rate tells us precious little about the true state of the economy; primarily due to the way it’s measured. After a certain period of time out of a job, and as government jobless benefits expire, most people leave the labour force, thus exiting the measurement sample from which the BLS determines the unemployment rate. Pre-recession, the labour force participation rate was 66%; today it is an alarmingly low 63.4%, consistently trending downwards since the onset of the crisis. This is the kind of economic problem not easily addressed, nor being currently addressed by policymakers. With no appetite for further injections of government spending by Congress (despite the President’s protestations), and economic growth barely on long-term trend, it’s unclear that there will be alleviation of this crisis in the labour market. This is further evidenced by the broadest measure of unemployment (incorporating the underemployed and long-term unemployed), the U-6 rate, sitting at 14.0% as of the July report. Consequences of this crisis range from the social dislocation caused by long-term unemployment to the economic problems associated with firms struggling to hire new employees who are properly trained and motivated for continually evolving occupations. Furthermore, when we look at the changes in various sectors of the economy since the GFC, key sectors such as construction and manufacturing have been savaged, at a time when American infrastructure is in need of sweeping repair and redesign. Yet despite all this and the alarming long-term risks to the economic recovery, nothing seems to be getting done in ever-dysfunctional Washington. It’s not as though the voting public are ignorant of this enduring economic crisis; consistently “jobs and the economy” rate as the most important issue to poll respondents, considered far more important than addressing the “deficits and national debt”. Ironically now, it seems that Washington’s obsession with slashing the budget deficit is actually limiting the jobs recovery. Looking back at the evolution of employment in the government sector in previous recessions, back to 1970, this is the only downturn and recovery that’s resulted in a net reduction in the public workforce with federal, state and local governments shedding nearly 750,000 jobs since June 2009. Serving as a significant drag on the economy as it sputters through recovery, unemployment would actually be at 7% today without this nationwide pursuit of austerity. Despite hampering the economic recovery through obtuse policies such as the sequester of government employees and spending implemented in March, this pursuit of deficit reduction has achieved its fundamental objective; large-scale write-downs in the fiscal deficits that were out of control through the 2000s. In mid-May, the Congressional Budget Office released figures showing the deficit falling to 4% of GDP, down from a deficit at 7% of GDP in 2012, and projected to fall to 2.1% of GDP by 2015, before rising again.The argument emerging from popular economists such as Paul Krugman, is that deficits are now at a point that is manageable in the short-term, thus necessitating a shift in focus to addressing the weak jobs market. Clearly, it is the up to the President to take leadership on this front if he is to have any chance of securing a substantive economic legacy. However, his challenge is twofold. Firstly, he must continue to address the long-term structural deficit that will drive deficits higher in the decades to come; particularly by achieving a grand bargain with Congress to reform the tax code and put social welfare spending programs on a path to long-term sustainability. Regrettably, it seems as though the appetite for such a legislative breakthrough is minimal at best, particularly as the short-term deficits continue to fall. Secondly, and perhaps more crucial to the economic recovery in the short-term, the President must take immediate action to bring the long-term unemployed back into the workforce. A recent meeting of the Senate Joint Economic Committee suggested four such policies:

  1. Better training programs so workers have the skills employers are looking for.
  2. Provide wage subsidies for displaced workers whose earnings have fallen after finding a job after being unemployed.
  3. Implementing a short-run government jobs program specifically tailored to the long-term unemployed.
  4. Greater emphasis on full employment policies from the Federal Reserve & Congress.

The challenge for the President is that most of these policies will require Congressional action and the navigation of a hostile Republican House majority seemingly unwilling to negotiate. Absent of this two-fold endeavour, the American economy will continue to stumble through this economic recovery, risking the possibility of not achieving full employment until 2022. From here, the once dominant economy will risk being left in China’s wake, as their inexorable economic rise continues. The challenge for the President is acute, now it’s his responsibility (for both his legacy and for the American people) to overcome the intransigence of Washington and address this forgotten economic crisis.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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