A decade of losses for working families

THE JOBS numbers were worse than expected for September. Were you surprised?

MOST PEOPLE were expecting around 180,000 jobs lost, and so we got 263,000--bigger, but not insanely out of line. Interestingly enough, the unemployment rate went up exactly as expected, 0.1 percent, which you might think was strange. Because if you lost over a quarter million jobs, you might expect the unemployment rate to go up more than that.

But there was a serious decline in the labor force. In other words, when you have a big drop in the labor force during a recession like this, you have a lot of people who've knocked on every door 10 times, and then they just stop. So they're no longer officially counted as unemployed, and so they're not in the labor force. If those people had instead been in the labor force, the unemployment rate would have jumped farther.

But yes, unemployment is still rising. It's still very much on pace to pass 10 percent by the end of the year. Unfortunately, I don't see any way we're going to avoid that.

YOU'VE TALKED about a 10.7 million jobs deficit in the U.S. economy. Can you explain that?

THE NUMBER is actually based on what we would need to get back to 2007 employment rates--not 2000 employment rates. In the late 1990s, we had unemployment rates below 4 percent. [In the 2000s business cycle], we never got near that. The lowest unemployment rate in the business cycle of the 2000s was 4.4 percent in March of 2007. So that 10.7 million jobs gap is based on getting back to that level.

The 2000s was one of the weakest business cycles on record, as far as the labor market goes. It had extremely sluggish job growth. We had this relatively weak recession in 2001, and then jobs just never came back. We had an extended period of joblessness. And the expansion didn't last very long.

And for the first business cycle on record, family incomes never even recovered by 2007 the real value that they had in 2000. Now, families are thrown into the worst recession in 70 years without having any kind of cushion that a more robust recovery prior to that recession may have afforded them. In other words, family incomes haven't grown since 2000.

And now comes this dramatic increase in unemployment and weakness in the labor market. Just in 2008--which is the tip of the iceberg--we saw an enormous decline in family incomes. And that's likely going to continue at least through 2010.

So we're talking about more than one decade of not only families not making any gains, but actually seeing substantial losses, from 2000 to 2010-2011. I don't think we'll make up for that for many more years afterwards.

SINCE THE 1970s, the entry of women into the workforce has helped hold up family income. What's happened in this recession?

WE DON'T have the data to really get it, but when you have a two-earner family, then that family is doubly exposed to the potential for job loss.

If one job is lost, it's not as devastating, because there's still another earner to potentially keep things afloat. It's interesting how much we're seeing man-woman families where the man has lost his job. I don't have numbers on this, but I bet that's happening a lot, given that men are being disproportionately hit by unemployment. And then you're in a situation where women have lower wages on average, so families are more likely to lose the higher wage earner.

So two-earner families that only lose one job are better off, but it's still going to be causing an enormous decline in living standards.

THE MASSIVE decline in wealth due to the evisceration of housing values is compounding all that.

THAT'S ONE of the things that's going to make this recession last longer and the recovery rockier.

People are talking about consumer confidence--asking when are consumers going to get their confidence back. Consumer confidence is low because fundamentals are bad. Consumers have lost enormous levels of wealth. The job market remains extremely weak. Even people who've kept their jobs are seeing downward pressure on their earnings.

And people don't have the cash to spend. They're not spending because they're realizing that they're a lot poorer than they thought they were, or than they actually were. That decline in wealth means people are poorer and they're going to be spending less, which puts a drag on the economy.

ALL OF this has an accumulative effect.

AND THE social contract has crumbled, even for people who have jobs. Less and less jobs are providing health insurance and pensions. There are fewer "good jobs" that provide a wage ladder, and not "Cadillac" but wrap-around health benefits.

That's been happening for a long time--the fact that people were less likely to see rising living standards, or maintaining their current one through having a good job. They went to debt-fueled consumption, and that's now over.

So unless we have a restoration of growth in good jobs--unless we're able to figure out how to restore an economy where the typical worker can see rising living standards through fundamentals, through actually getting a good job--a declining standard of living is on the table.

HAVE YOU been able to do a comparative labor market research about how U.S. workers are fairing relative to their counterparts in other advanced countries?

THE DATA we have available is for 2000. It's not the most recent, but the comparisons across countries are pretty stark. Before taxes and transfers, the U.S. child poverty rate is not the highest. France, before taxes and transfers, has a higher child poverty rate than the United States, and the U.S. is way more in line with other countries.

But after taxes and transfers, the U.S. is far out in front of the rest. Most other peer countries have a safety net that fills in the gap where the market has failed. In the U.S., before tax and transfer, the child poverty rate was 26.6 percent before taxes; after taxes, it's 24.9 percent. So there was a very small improvement in child poverty due to actual programs. Whereas France, pre-tax, the child poverty was 27.7 percent, after taxes and transfers it was 7.5 percent.

So that gets at the fact that as far as our market outcomes go, the U.S. is not that much out of line with peer countries. But other countries are more willing to step in where the market has failed and reduce child poverty.

YOU'VE ALSO focused on the problem of long-term joblessness.

WE ARE every month shattering every record in the book since the Great Depression as far as long-term unemployment goes. We had regular unemployment rates that were at 3.8 percent in the 1990s. By comparison, the highest point that long-term unemployment ever got to in the early 1980s was 2.6 percent. So we're just swamping anything as far as long-term unemployment goes.

And that, I think, will continue to increase. Because what we're seeing now is the dramatic moderating of layoffs, but hiring has not picked up. There are fewer people every month becoming unemployed, but those who are unemployed are not finding jobs.

That's actually the dynamic that we saw for the two last jobless recoveries. Layoffs really moderated after the technical end of those recessions, but hiring was very delayed. And that's clearly what we're seeing here. So these long-term unemployment records are not going away any time soon.

WHICH IS quite different from the early 1980s recession.

AFTER 1983, we had an incredibly fast bounce back. I would take the music and the hair if we could get the employment bounce-back of the 1980s. The minute the recession was over, we started adding jobs in a really robust way. That's just not the case now. We are facing the biggest downturn in 70 years, and that is going to be coupled with a really rocky recovery, unlike the 1980s.

WHAT WILL the impact be on workers?

IF WE assume that the recession ended in August, and that the unemployment rate evolves post-recession as it did after the 1990 and 2001 recessions, we will still have unemployment at 8 percent in 2014. If weakness in the labor market lasts so long, we'll have people who see a serious erosion of their skills.

If you're 55, and you've lost your job and the labor market is weak--you can't find something comparable for five years--you've just taken a big chunk out of what was going toward your retirement that you will never get back.

For young workers, it's the same story, but just on the early end. Those early jobs set up your career ladders, your networks and your mentors. If we have a weak labor market for five years, we have a cohort of kids that just have less access to that stuff for five years. That's going to have a huge and lasting impact.

WHAT'S THE jobs picture for African American and Latino workers, given these patterns?

HISPANICS, WHO are disproportionately immigrant compared to the rest of the population, are getting crushed by this downturn. I need to look at it carefully, but I think it has a lot to do with the fact that the industry that's getting disproportionately hit hardest for Hispanics is construction.

So Hispanic families who were doing pretty well during the construction boom of the 1990s just had the rug pulled out from under them, and are seeing massive declines in family income and massive increases in poverty.

African Americans are getting much harder hit by unemployment. It's generally the case that you see Black unemployment at twice the average unemployment rate. Black unemployment is at 15.4 percent, so we're talking near depression-level unemployment rates among the Black community. The Hispanic unemployment rate is 12.7 percent.

THIS DISCUSSION makes the case for greater economic stimulus.

POLITICALLY, WE'RE not going to get a big omnibus bill like we had in February. But it can still be done on a piece-by-piece basis.

One thing that would be a no-brainer would be to extend all the safety net provisions that were in the stimulus bill--things like employment insurance extensions and COBRA [health insurance] subsidies. Food stamps and unemployment insurance are a great stimulus, because they get money in the hands of people who have no choice but to spend it immediately in their local economy.

Also, state budgets in 2010 are facing around a $200 billion deficit all together. Unless that gets filled in, it will be like subtracting $200 billion from the Recovery Act. So additional aid to states is absolutely crucial.

I think we really need to start thinking very seriously about direct job-creation programs in areas that will have high unemployment in years to come, as well as a jobs-creation tax credit--a wage subsidy for business that hire new workers.

That should be concern number one on everyone's mind right now: What innovative or tried and true things can we do to generate a robust recovery right now? Because the hole we have to fill is enormous, and the American workforce is too big to fail.

Transcription by Tom Arabia