On this Labor Day, there is little good news about labor. We have entered a long period of crushing unemployment and downward pressure on wages that may well transform the nation’s economic and political landscape.
This is a historic inflection point, symbolized by President Barack Obama’s promise of a new jobs program. It’s unclear whether either he or his Republican critics truly know how to speed up job creation. Obama has already provided massive “stimulus”: $4 trillion of budget deficits from 2009 to 2011. Meanwhile, the Federal Reserve has kept short-term interest rates near zero. Still, the economy languishes. Nor will the Republican emphasis on less regulation and lower deficits instantly provide a big boost. Smaller deficits, for example, won’t much reduce interest rates, because they’re already low.
Even if an effective jobs program emerges, high unemployment will linger for years. Here’s why, thanks to some jobs math from economist Heidi Shierholz of the Economic Policy Institute, a liberal think tank.
To reduce unemployment, the economy must create enough new jobs to absorb entrants into the labor market and the existing out-of-work. Shierholz has calculated how many jobs would be needed to lower unemployment (9.1 percent in August) to 5 percent over five years: 16.9 million. That’s an average of 282,000 jobs a month. The trouble is that this rate of job creation far exceeds the present level (105,000 a month since early 2010) or even the level (240,000) achieved during the boom between 1993 and 2000.
Even with rapid job growth, unemployment will descend slowly. With sluggish growth — or another recession — it may remain high indefinitely. Unemployment will increasingly define our economic prospects and politics.
At last count, there were 4.5 unemployed workers for every job opening. Bargaining power has shifted from labor to capital. Sure, some workers will get promotions and seniority raises. Otherwise, gains will be slim. Since September 2008, annual wage and salary increases have averaged 1.6 percent, the slowest pace in 30 years, reports EPI’s Lawrence Mishel.
The middle-class “squeeze” long alleged by politicians is finally becoming reality. Stagnating take-home pay will make people feel they’re treading water. More-costly employer-provided health insurance will compound the squeeze on take-home pay.
Likewise, the social contract between workers and employers is being rewritten. After World War II, many large companies provided well-paid and secure jobs for career employees. Theirs was a “ career-type system,” as UCLA economist Sanford Jacoby puts it. It was never universal; a parallel “ churn-type system” of firms paid low wages and had high turnover. Job protections began breaking down in the 1980s; today’s mass layoffs now accelerate the shift.
“Because employers face greater uncertainty, they’re less willing to shelter employees from risk,” says Jacoby. “There’s been a change in the relative size of the two employment systems: The career-type system has shrunk, and the churn-type system has grown.”
Still, the harshest effects fall on the jobless. “We’re creating a bifurcated society,” worries Harvard economist Lawrence Katz. “We’re talking about a lost generation of younger workers and displaced workers.” Younger workers have a harder time starting careers. Because many skills are developed on the job, long unemployment spells can lower lifetime earnings. The same is true of older workers. Even when those who lose a stable job get new work, they often suffer a 20 percent earnings loss for 15 years or more, reports economist Till von Wachter of Columbia University.
Will job fears compound consumer cautiousness, retard recovery and perversely worsen unemployment? How many workers will cling to jobs they despise? Will economic frustrations feed a populist backlash? Of left or right? Can America’s leaders cope? On this Labor Day, questions are clearer than answers.