The Other Economic Crisis
The crisis in the financial markets has been getting — appropriately — an enormous amount of attention in the media and in Washington. But a related crisis in our economy, the severe downturn in the labor market, has garnered much less attention even though it has been building for months and its impact is much more broadly felt.
Since late last year, the overall economy has lost 760,000 jobs and the private sector has lost nearly 1 million jobs. Since early last year, the unemployment rate has increased by 1.7 percentage points, representing an additional 2.7 million unemployed workers. Last month, 6.1 percent of the labor force — 9.5 million workers — were unemployed.
Furthermore, workers who are unemployed are having a much harder time finding a job. More than one in five unemployed workers has been jobless for over six months, the highest long-term unemployment share in three and a half years. In August, there were over 6 million more jobless workers than job openings, meaning that millions of workers are facing unemployment with little hope of finding employment. Meanwhile, the underemployment rate, a more comprehensive measure of job-market slack that includes, for example, part-time workers who want full-time jobs, now stands at 11%. This all adds up to an exceptionally weak labor market in which one out of every nine U.S. workers is either unemployed or underemployed.
The increased slack in the labor market doesn’t only affect the unemployed; for workers who keep their jobs, wage growth has stalled. Before accounting for inflation, average weekly earnings for production and non-supervisory workers (who make up 80 percent of total private employment) have increased just 2.8 percent over the last year, while inflation has risen by around 5.5 percent. Increases in prices are now far outpacing increases in wages.
Living Standards
Most economists expect that the crisis in the labor market, brought on by the bursting of the housing bubble and aggravated by the meltdown in the financial markets, will continue to worsen through the end of 2009, and could affect working families for years to come. It is an enormous setback to the millions of American families for whom a strong labor market is the only channel for maintaining living standards.
It remains to be seen whether Congress’s $700 billion Wall Street rescue package will bring stability to the tottering financial system, though early signs are not en-couraging. What is imperative is that lawmakers balance their concern about financial markets with concerns about the living standards of working families. These families were facing recessionary conditions long before the financial crisis, and even with the bailout, conditions will worsen before they improve.
Congress passed a stimulus bill earlier this year, but its effects have already worked through the system. A second stimulus bill, on the order of $200-300 billion spent over the next year and a half, is what the deepening trouble in the labor market calls for. This stimulus package should include direct job creation through infrastructure repairs and investments, relief for hard-pressed state governments, food stamp and heating assistance and additional help for the long-term unemployed.
Heidi Shierholz is an economist with the Economic Policy Institute in Washington, D.C. She can be reached at hshierholz@epi.org.
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