I spent last Friday at an IMF workshop about the ‘unemployment crisis’, its costs, causes and cures. To do that I had to stop working–trading–and listen to other people who work as professional economists. At the end of the day, my wife suggested we take in a movie. Her choice? “Wall Street: money never sleeps”. To my surprise, it was a perfect nexus to the workshop. One of Gordon Gecko’s lines in the film is about the NINJA generation: No Income. No Job. No Assets. That has been the reality for many who have suffered unemployment in previous periods, but is now a spreading reality. The other reality for those who manage to get jobs during what was termed the ‘great recession’ is that they may never catch up in terms of incomes with those who had jobs before the recession. But, I run ahead. Let me flag some of the main points that struck me during the workshop.
Whether the cause of job losses comes from structural or cyclical reasons, unemployment has many short-term negative consequences, and awareness is rising about its longer term negative consequences. These involve earnings losses that last 15-20 years; instability that lasts 10 years and generally negative effects of family stability and children; high mortality rates amongst job losers; those who find work also suffer for a decade. Sociologists have noted many of these characteristics in the past, and often see them in cycles of poverty. Many economists are now seeing them more clearly.
Unemployment affects people and places. Again, this should not be news to economic historians or economic geographers. So, there is more recognition of local economic distress. This has been the lot of places that have gone through structural economic changes, eg, from one technology to another, such as the demise of mining or heavy industrial processes. The mismatch of skills is an obvious problem but it is not easily solved with so-called macroeconomic policies; focus has to be on what problems exist and need solving at local levels. The process of adjustment ma be long and harsh, and t has a new dimension from the debt and limitations imposed by owning houses. The abiility to acquire new skills is not evenly distributed geographically or socially. It is also a reality that a downward spiral can occur with the demise of industries and loss of jobs and the reluctance of new employers or industries to go to places that are in decline. In this sense, The Hamilton Project‘s October 2010 Strategy Paper, An Economic Strategy to Renew American Communities, is worth reading.
Many similarities exist between the experiences of the 1929 and 2007 economic crises. Both exhibit sharp increase in income inequality. Both witness sharp increase in debt leverage among lower and middle class households. High leverage was an important factor in the financial and real economy collapse.
Those who are or have recently been unemployed can find little solace in much of this, and the American unemployed person is in a much worse situation than has been the case for many decades, especially with the average length of unemployment rising. Europe has had higher and longer periods of unemployment during recent decades, but that does not really make it sweet.
Few families have gone through the past 2-3 years without having a taste of the impact of unemployment, and that is a stirring experience. People live for hope and long periods without paid work often dashes hopes quickly. Thoughts of being a Ninja were once exciting, now it’s really worrying.