Thursday, February 21, 2013

High Unemployment = Continued Economic Depression

High Unemployment = Continued Economic Depression
The latest weekly jobs report shows that initial unemployment claims are up. While one week of bad data doesn't make a trend, it's just the latest reminder that, 5 years after the economy crashed, unemployment remains a chronic problem in this country. In fact, persistently high unemployment is a key reason why economic recovery has been so elusive. Back in 2011, America's unemployed and underemployed forwent more than $1.2 trillion in wages. Since that time, the government has been busily slashing the labor force participation rate. The unemployment rate has been printing lower, but the aggregate number of employed persons is about the same now as it was 2 years ago. Therefore, the aggregate amount of annual wages lost to unemployment/unemployment remains more or less the same. And $1.2 trillion in annual lost wages is as much a drag on our consumer spending-driven economy now as it was in 2011.

Economic recovery cannot become self-perpetuated until the unemployed get good jobs and resume contributing to consumer spending at their maximum potential. Apart from the fact that quality of jobs-created has badly deteriorated since 2008, the primary problem with this is the number of long-term unemployed continues to rise. (The aforementioned plummeting labor force participation rate only makes it appear that the number of long-term unemployed has been falling.) But the long-term unemployed aren't finding jobs; they're falling off the radar screen.

I cannot stress this enough: those who are unfortunate enough to find themselves among the ranks of the perennially jobless typically face a lifetime of depressed earnings. (One study suggests that long-term unemployment cuts one's lifetime earning potential by as much as 20%.) The longer that the job market remains bleak (remember, it's been 5 years and counting), the more people fall into the category of long-term unemployed, whether or not the government counts them as such. The more people who are long-term unemployed, the more people who will have a lower contribution to consumer spending in both the short and long term. In the long-term, this means the creation of a new underclass.

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