In order to achieve a substantial improvement in inflation, the nation has been forced to accept two back-to-back recessions and the highest level of unemployment since the Great Depression. Since there is no guarantee that inflation will not reignite as the recovery continues, it's worth considering whether unemployment still entails consequences that should make it unacceptable as the nation's major inflation-fighting weapon.
Thanks to unemployment benefits and the increasing prevalence of multiple-earner families, the harsh effects of unemployment, especially short- term unemployment, have certainly been substantially mitigated. Recent studies remind us, however, that they have by no means been obliterated. The Bureau of Labor Statistics, for example, in a new report exploring the link between unemployment and economic status finds evidence that the recession worsened the employment problems of low- income families and added significantly to their number.
Unemployment has far more pervasive effects on families and individuals than the monthly count of unemployment would suggest. During 1981, when the most recent recession was only getting under way, 23.4 million people experienced some unemployment. In 1982, 26.5 million people were affected, 8 million more than in 1979. Adding in people who were forced to work part-time because they couldn't find other jobs or who worked continuously for less than the minimum wage, the bureau estimates that about one in three people in the labor force experienced employment problems.
Of course, most of these people weren't poor. But even by the begrudging standard of official poverty many of them were. In 1981, when the most recent recession was only beginning, about 6.7 million people experiencing employment problems lived in families with less than a poverty level income--a substantial increase over the 1979 number. And unemployment can, of course, cause real hardship without driving a family below the subsistence level. In 1981, the bureau found, families experiencing unemployment had incomes 33 percent lower than those families that did not.
Another perspective on the severity of the recession is provided by economist Isabel Sawhill, who recently calculated that recession-induced income losses cost the economy $171 billion, an average loss per family of over $2,000. Moreover, even with a steady recovery, the average family will lose another $2,647 before the economy gets back to the 1979 unemployment level. That might be a reasonable price to pay for controlling inflation if the burden were distributed evenly or, better yet, in proportion to ability to pay. But unemployment has an unpleasant tendency to send its bills to those who can least afford to pay them.