The Unemployment Crisis in the United States

Unemployment in the United States is at a crisis level. Yet, many politicians in Washington, D.C. still think that high unemployment is “transitory”. There is ample evidence that the current unemployment situation in the United States is anything but transitory, that it will be prolonged and deep to reach unprecedented levels higher than those seen during the Great Depression of the 1930’s.

Unlike during other recessions where unemployment would end in a reasonable amount of time of a few months, unemployment this time around - which was triggered by the 2008-2009 financial crisis, one of the greatest financial crises in the history of mankind - had been forming and deepening its roots long before the financial crisis.

Currently, and according to official government records, unemployment is at 9.0 per cent. More reliable independent estimates put unemployment at higher than 20 per cent. Either way, unemployment should not be this high nearly three years after it began with the financial crisis. Unemployment should have come down to its customary levels of 5-6 per cent by now. But it hasn’t and there is no evidence to suggest that it will come down or stabilise anytime soon. The slight improvement that we saw from 9.8 per cent in November 2010 to 9.0% in April 2011 was largely due to many labourers exiting the labour force by retiring and not being replaced by new workers, thereby driving the workforce participation to an all-time low of around 62 per cent.

The unemployment rate jumps much higher if we count part-time workers and workers who have accepted lower-paying jobs either within or outside of their areas of expertise in order to pay the bills and feed their families, then the official unemployment rate would be close to 18 per cent and the independent (and more realistic) unemployment estimates would be close to 30 per cent of either unemployed or under-employed. Furthermore, over six million Americans have been unemployed for six months or longer and close to four million have been unemployed for over a year. And according to official estimates, unemployment among teenagers ranging from 16 to 19 years of age is at a staggering 24 per cent. The numbers are similar for newly college graduates who are facing great difficulties finding even low-paying entry-level positions upon graduating from college.

These are hard facts that point to serious unemployment issues that are structural in nature and larger in scope and composition. Millions of jobs have been outsourced to foreign destinations, and the manufacturing jobs are at levels that existed during the World War II when the population of the United States was less than half its current size. And as Mr. Mohamed El-Erian, the CEO and co-CIO of PIMCO said that the scope and composition of unemployment in the country is a problem “that is yet to be sufficiently recognised for its increasingly detrimental impact on the country’s social fabric, its economic potential, and its already-fragile fiscal position and debt dynamics.” He too characterised the unemployment situation in the United States as a “crisis” and stated the following:

“At its root, America’s jobs crisis is the result of many years of under-investment in human resources and the social sectors. The education system has lagged the progress made in other countries. Job retraining initiatives have been woefully inadequate. Labour mobility has been declining. And insufficient attention has been devoted to maintaining an adequate social safety net.”

He added “These realities were masked by the craziness that characterised America’s pre-2008 ‘Golden Age’ of leverage, credit, and debt entitlement, which fueled a gigantic but unsustainable boom in construction, housing, leisure, and retail. The resulting job creation, though temporary, lulled policymakers into complacency about what was really going on in the labor market. As the boom turned into a prolonged bust, the longer-term inadequacies of the job situation have become visible to all who care to look; and they are alarming.”

Given the multi-faceted economic and financial issues that the United States is facing, the many years of borrowing and spending lavishly and the large personal and government debts that has become part of the American culture, and with the continual decreasing productivity in this country, the question is can the United States deal effectively with its unemployment crisis and can the unemployment rate ever come down to what it used to be only a few short years ago before the 2008 financial crisis? While we hope that unemployment rate goes down, there is no evidence that it will. We believe that the unemployment problem will worsen undermining labor’s skills and productivity and any real economic progress. Unemployment in the United States is a serious issue that requires immediate attention not only for moral reasons so that families can eat, but also for the progress of this great country.

* With contribution from Bruce H. Pugesek, President of Voyageur Research

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