On this Labor Day, there is little good news about labor. We have entered a long period of crushing unemployment and downward pressure on wages that may well transform the nation’s economic and political landscape. There was no job growth in August, and the overall numbers are stupefying: 14 million unemployed; nearly 9 million part-time workers wanting full-time jobs; 6.5 million who want jobs but have given up looking and are, therefore, not counted in the official labor force. People are only gradually recognizing the magnitude of the problem.
This is a historic inflection point, symbolized by President Obama’s promise of a new jobs program. It’s unclear whether either he or his Republican critics truly know how to speed up job creation. Obama has already provided massive “stimulus”: $4 trillion of budget deficits from 2009 to 2011. Meanwhile, the Federal Reserve has kept short-term interest rates near zero. Still, the economy languishes. Nor will the Republican emphasis on less regulation and lower deficits instantly provide a big boost. Smaller deficits, for example, won’t much reduce interest rates, because they’re already low.
Even if this skepticism proves overdone — and an effective jobs program emerges — high unemployment will linger for years. Here’s why, thanks to some jobs math from economist Heidi Shierholz of the Economic Policy Institute, a liberal think tank.
To reduce unemployment, the economy must create enough new jobs to absorb the existing out-of-work and entrants into the labor market. Shierholz has calculated how many jobs would be needed to lower unemployment (9.1 percent in August) to 5 percent over five years. Her estimate: 16.9 million. That’s an average of 282,000 jobs a month. The trouble is that this rate of job creation far exceeds the present level (105,000 a month since early 2010) or even the level (240,000) achieved during the boom between 1993 and 2000.
You can tinker with Shierholz’s assumptions, but the main conclusion doesn’t change. Even with rapid job growth, unemployment will descend slowly. With sluggish growth — or another recession — it may remain high indefinitely. There are no quick fixes. Unemployment will increasingly define our economic prospects and politics.
It’s not only the jobless who will be affected. No one has yet repealed the law of supply and demand. At last count, there were 4.5 unemployed workers for every job opening. Bargaining power has shifted from labor to capital. Sure, some workers will get promotions and seniority raises. Otherwise, gains will be slim. Since September 2008, annual wage and salary increases have averaged 1.6 percent, the slowest pace in 30 years, reports EPI’s Lawrence Mishel.
The middle-class “squeeze” long alleged by politicians is finally becoming reality. In the past it’s been hyped. Over extended periods, most household incomes rose. For example, median inflation-adjusted incomes of four-person households were up 18 percent from 1990 to 2007. But now, stagnating take-home pay will make people feel they’re treading water. More costly employer-provided health insurance will compound the squeeze on take-home pay.
Likewise, the social contract between workers and employers is being rewritten. After World War II, many large companies — IBM, Kodak, Time — provided well-paid and secure jobs for career employers. Theirs was a “career-type system,” as UCLA economist Sanford Jacoby puts it. It was never universal. A parallel “churn-type system” of firms paid low wages and had high turnover. Job protections began breaking down in the 1980s; today’s mass layoffs now accelerate the shift.
“Because employers face greater uncertainty, they’re less willing to shelter employees from risk,” says Jacoby. “There’s been a change in the relative size of the two employment systems: The career-type system has shrunk, and the churn-type system has grown.”
Still, the harshest effects of joblessness fall on the jobless. “We’re creating a bifurcated society,” worries Harvard economist Lawrence Katz. “We’re talking about a lost generation of younger workers and displaced workers.” Younger workers have a harder time starting careers. Because many skills are developed on the job, long unemployment spells can lower lifetime earnings. The same is true of older workers. Even when those who lose stable jobs get new work, they often suffer a 20 percent earnings loss for 15 years or more, reports economist Till von Wachter of Columbia University.
Getting ahead is a central part of America’s promise. Unemployment has exceeded 8 percent since February 2009; many forecasts expect it to stay there into at least 2014. Nothing like this has occurred since World War II. Will job fears compound consumer cautiousness, retard recovery and perversely worsen unemployment? How many workers will cling to jobs they despise because they can’t find anything else? Will economic frustrations feed a populist backlash? Of left or right? Can America’s leaders cope? On this Labor Day, questions are clearer than answers.