[Vision2020] The Jobless Trap

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

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April 21, 2013
The Jobless Trap By PAUL
KRUGMAN<http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html>

F.D.R. told us that the only thing we had to fear was fear itself. But when
future historians look back at our monstrously failed response to economic
depression, they probably won’t blame fear, per se. Instead, they’ll
castigate our leaders for fearing the wrong things.

For the overriding fear driving economic policy has been debt hysteria,
fear that unless we slash spending we’ll turn into Greece any day now.
After all, haven’t economists proved that economic growth collapses once
public debt exceeds 90 percent of G.D.P.?

Well, the famous red line on debt, it turns out, was an artifact of dubious
statistics<http://www.nytimes.com/2013/04/19/opinion/krugman-the-excel-depression.html?partner=rssnyt&emc=rss>,
reinforced by bad arithmetic. And America isn’t and can’t be Greece,
because countries that borrow in their own currencies operate under very
different rules from those that rely on someone else’s money. After years
of repeated warnings that fiscal crisis is just around the corner, the U.S.
government can still borrow at incredibly low interest rates.

But while debt fears were and are misguided, there’s a real danger we’ve
ignored: the corrosive effect, social and economic, of persistent high
unemployment. And even as the case for debt hysteria is collapsing, our
worst fears about the damage from long-term unemployment are being
confirmed.

Now, some unemployment is inevitable in an ever-changing economy. Modern
America tends to have an unemployment rate of 5 percent or more even in
good times. In these good times, however, spells of unemployment are
typically brief. Back in 2007 there were about seven million unemployed
Americans — but only a small fraction of this total, around 1.2 million,
had been out of work more than six months.

Then financial crisis struck, leading to a terrifying economic plunge
followed by a weak recovery. Five years after the crisis, unemployment
remains elevated, with almost 12 million
Americans<http://research.stlouisfed.org/fred2/series/UNEMPLOY?cid=32446>out
of work. But what’s really striking is the huge number of long-term
unemployed, with 4.6 million unemployed more than
<http://research.stlouisfed.org/fred2/series/LNU03008636?cid=32451> six
months and more than three million
<http://www.bls.gov/opub/ee/2013/cps/tablea35_201303.pdf>who have been
jobless for a year or more. Oh, and these numbers don’t count those who
have given up looking for work because there are no jobs to be found.

It goes without saying that the explosion of long-term unemployment is a
tragedy for the unemployed themselves. But it may also be a broader
economic disaster.

The key question is whether workers who have been unemployed for a long
time eventually come to be seen as unemployable, tainted goods that nobody
will buy. This could happen because their work skills atrophy, but a more
likely reason is that potential employers assume that something must be
wrong with people who can’t find a job, even if the real reason is simply
the terrible economy. And there is, unfortunately, growing evidence that
the tainting of the long-term unemployed is happening as we speak.

One piece of evidence comes from the relationship between job openings and
unemployment. Normally these two numbers move inversely: the more job
openings, the fewer Americans out of work. And this traditional
relationship remains true if we look at short-term unemployment. But as William
Dickens and Rand
Ghayad<http://www.bostonfed.org/economic/ppb/2012/ppb123.pdf>of
Northeastern University recently showed, the relationship has broken
down for the long-term unemployed: a rising number of job openings doesn’t
seem to do much to reduce their numbers. It’s as if employers don’t even
bother looking at anyone who has been out of work for a long time.

To test this hypothesis, Mr. Ghayad then did an experiment, sending out
résumés describing the qualifications and employment history of 4,800
fictitious workers. Who got called
back<http://blogs.cfr.org/kahn/2013/04/17/our-long-term-unemployment-challenge-in-charts/>?
The answer was that workers who reported having been unemployed for six
months or more got very few callbacks, even when all their other
qualifications were better than those of workers who did attract employer
interest.

So we are indeed creating a permanent class of jobless Americans.

And let’s be clear: this is a policy decision. The main reason our economic
recovery has been so weak is that, spooked by fear-mongering over debt,
we’ve been doing exactly what basic macroeconomics says you shouldn’t do —
cutting government spending in the face of a depressed economy.

It’s hard to overstate how self-destructive this policy is. Indeed, the
shadow of long-term unemployment means that austerity policies are
counterproductive even in purely fiscal terms. Workers, after all, are
taxpayers too; if our debt obsession exiles millions of Americans from
productive employment, it will cut into future revenues and raise future
deficits.

Our exaggerated fear of debt is, in short, creating a slow-motion
catastrophe. It’s ruining many lives, and at the same time making us poorer
and weaker in every way. And the longer we persist in this folly, the
greater the damage will be.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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