Labor Economics -- the Ripple

Labor Economics -- the Ripple Effects of Unemployment

The litany of dry unemployment data read from a teleprompter by an attractive, well-groomed cable TV newsreader tends to go in and out of the ears of many Americans. Those out of work probably don't want to hear any more to contribute to their own personal misery. Those who are employed may shrug shoulders and ignore the statistics. But beyond the hard cold facts of an American economy where 9.8% of workers are unemployed, what are the ripple effects of unemployment? What are the many subplots that are spin-offs from unemployment during a prolonged recession? How do politicians and political parties respond to various stressors and pressures vis-a-vis unemployment? These questions and others will be addressed in this paper.

The current unemployment facts

According to the U.S. Department of Labor's (DOL) Bureau of Labor Statistics, as of November the unemployment rate went up slightly to 9.8%. The unemployment rate had been steady at 9.6% during the three previous months. The actual number of unemployed persons was 15.1 million in November, and that breaks down in several ways among major worker groups.

For adult men the unemployment rate is a flat 10%; for adult women it is 8.4% (DOL). Ethically speaking, 8.9% of Caucasians are out of work; 13.2% of Latinos (the DOL refers to Latinos as "Hispanics") are unemployed; for African-Americans the unemployment rate is 16%. The rate of unemployment for teenagers' is 24.6%, down slightly from the previous reporting period. For Asians the jobless rate was 7.6% (DOL).

The temporary job market had a ripple effect in November, the DOL reports. For those unemployed, the number of job "losers and persons who completed temporary jobs" rose by 390,000 to 9.5 million in November. The number of "long-termed unemployed" -- that is, those who have been out of work for 27 weeks or more -- stood at 6.3 million and in fact accounted to 41.9% of the unemployed. As for the civilian labor force "participation rate," it held at 64.5%, the DOL data reveals. The number of persons who work as part time employees -- for economic reasons -- was 9 million, and in November about 2.5 million people were "marginally attached to the labor force" the DOL explains, that's up from 2.3 million in 2009.

What does "marginally attached to the labor force" mean? On page two of "The Employment Situation -- November 2010" explains that these particular individuals were not in the labor force but they did want to work and they looked for work at some point over the last 12 months. Another labor statistic that the DOL uses is "discouraged workers"; there were 1.3 million of them in November, up from 421,000 in November of 2009. Discouraged workers in this case are those "not currently looking for work because they believe no jobs are available to them," the DOL points out on page 2.

Specific industries within the labor market

The healthcare industry added about 19,000 jobs as of November, and 8,000 of those hired are working in hospitals (DOL). Mining-related jobs "continued to trend up" in November, the DOL reports; 6,000 jobs were added in November and since November 2009, the mining industry has added 74,000 jobs. "Non-farm payroll employment" experienced no change in November (there are 39,000 people working in that field).

The "temporary help services" added 40,000 jobs in November, that is up by 494,000 since September of 2009 the DOL notes. The retail trade field lost 28,000 jobs in November, mostly in department stories (-9,000) and furniture and home furnishings outlets (-5,000). Another sector of the economy, manufacturing, lost jobs, 13,000 in this case. And the DOL (p. 2) also adds that the average workweek for "all employees" that work on "private non-farm payrolls" held steady in November at 34.3 hours albeit the workweek for those in manufacturing stayed the same at 40.3 hours. Finally, the average hourly earnings of all workers in non-farm payrolls actually went up by 1%, the DOL continues (p. 3); that raises the non-farm hourly rate to $22.75.

The road to economic recovery is not going to be on a smooth fast track, according to the U.S. Industry Quarterly Review. That road will be "long" and workers will be "granted below-average wage growth" for at least the next two years. Since December 2007, the U.S. economy has lost more than 8 million jobs. The economic downturn and resulting loss of jobs hasn't just effected the blue collar workers and laborers; the U.S. Industry Quarterly Review reports that the unemployment rate for those who have graduated from college "has more than doubled from 2% at the close of 2007" and it's near 5% now.

Loss of jobs results in tens of thousands of home foreclosures

Another ripple effect of the current state of affairs regarding unemployment in the U.S. is that when families lose their principal source of income in too many cases they are being forced from their homes. In fact in the third quarter of 2010 some 288,345 properties were foreclosed in the U.S., according to Fox News. In this past quarter (July-September) lenders "seized more U.S. homes" than in any three-month window time since the housing market collapsed in 2006, Fox explains. Using data provided to the news media by Reality Trac Inc., a listing service for foreclosures in the U.S., Fox explains that in the previous quarter (April-June) there were 270,000 foreclosures and hence the trend is clearly up, not down, for families losing homes.

The October news story by Fox reports that through the first nine months of 2010, banks have seized "more than 816,000 homes"; and if the trend continues, which it seems to be doing, U.S. banks are on a path to kick families out of a total of 1.2 million homes by the end of the year. The story goes on to explain that there is an ongoing nationwide investigation -- attorneys general in all 50 states are involved -- into the reasons for the massive amount of foreclosures. The ramifications that banks and other lenders must face are likely confusing to homeowners who want to stay in their place of residence. The Fox story quotes Rick Sharga with Realty Trac saying that even if state officials can somehow force banks to stop evicting homeowners and taking back homes through foreclosure, the homes will eventually be repossessed anyway. "They simply won't be repossessed as quickly. We're simply delaying the inevitable," he added.

Experts are saying that if lenders stop "seizing homes, the foreclosure delays could last well into next year" which could have a "severe effect" on home sales and the prices of those homes. Why? The delay in foreclosures in late 2010 -- assuming those homes would be foreclosed eventually anyway -- according to Sharga would mean that "You would virtually guarantee that tens of thousands of properties would miss going to market in time for the spring, which is the peak buying season for real estate" (www.foxnews.com).

The re-sale of homes that had been foreclosed made up "18% of all U.S. home sales" in September 2010, Fox goes on. The following sentence from page 2 of the Fox news report restates the reality that was expressed earlier in this section: "Economic woes, such as unemployment or reduced income, continue to be the main catalysts for foreclosures this year" (www.foxnews.com).

What is life like after foreclosure?

Marilyn Kennedy Melia -- writing in the Website Bankrate.com -- explains the consequences of foreclosure and quotes from Ohio State University research scientist Jay Zagorsky. "While there is considerable pain," Zagorsky explains, "most foreclosure victims will eventually become homeowners again" (Melia, 2010, p. 1). That is not likely to be of much comfort to a family that was foreclosed in December with temperatures in the teens and a snowstorm on the way. Melia says the "record-breaking foreclosure statistics are coming out with numbing frequency," so with the cold winter weather and "numbing" statistics, what can a family do once the bank has kicked them out of their home?

The consequences, Melia continues, start with the obvious: finding a new home. But without adequate cash to put down as a deposit on a rental, and with a foreclosure serving as a black mark in one's credit report, finding (and affording) an appropriate apartment becomes problematic. Melia suggests that those who are being foreclosed but have an FHA-insured loan should investigate the "cash for keys" program; that is, if the home being foreclosed is spotlessly clean when the family vacates, that family is eligible for a $1,000 check, which can certainly help during the search for temporary lodging (www.bankrate.com).

The second consequence is also obvious: the credit fallout that results from a foreclosure. The interest rate on a credit card held by a foreclosed owner "could…jump to very high levels -- as much as 30%," Melia writes, quoting a consumer education expert, John Ulzheimer. Oh but there is a silver lining around that dark credit cloud, Ulzheimer explains. That is, if the foreclosure is the only black mark on a person's credit rating, that credit card holder may be able to "rehabilitate their record and garner better loans and card rates in 24 months," Ulzheimer goes on, attempting to clear the air in a very cloudy, confusing and even toxic credit card dynamic.

The third consequence of foreclosure, according to Melia's narrative, is the struggle waiting for those wishing to buy another home. Fannie Mae, for example, relates the bleak realities for those who have foreclosed their homes and who hope to purchase another one. For those borrowers who "have made reckless debt decisions," they can't get a new mortgage for a new home until 5 years has passed. It was 4 years previously but in this time of economic recession, money is tight so if the investigation into a person's credit shows Fannie Mae that "reckless" financing decisions were made (that led to the foreclosure) that person must wait the extra year (www.bankrate.com). However, if the applicant can explain to the lender that he or she was foreclosed due to "situations beyond someone's control" -- "like a job loss" -- then only 3 years must pass prior to that foreclosed homeowner and new applicant prior qualifying for a new mortgage (www.bankrate.com).

Melia offers three more consequences of foreclosure: a) "owing an employer an explanation" (when applying for a new job, your foreclosure should not hinder your chances "unless you're applying for a job in which you handle money"); b) "getting hit with a tax bill" (how totally unfair to lose a job, then a home, and months later a bill from the IRS arrives "for taxes on the amount of mortgage that the lender was never able to recover from the sale of the property"; when debt is forgiven, Melia continues, "it's a potentially taxable event"); and c) "living through loss" (this applies not just to parents whose home has been foreclosed, but also to children; "some two million children are likely to be impacted by foreclosure…including the disruption of being place in a new school…") (www.bankrate.com).

Unemployment and unemployment insurance benefits -- a political minefield

The first thing -- or at least one of the first things -- a laid off worker does (when the required out-of-work window of time has passed -- is apply for unemployment benefits. But what happens when the weeks go by without work, the job market remains seriously depressed, and the benefits expire, leaving the unemployed worker with no money at all? And worse yet, when it's Christmas season and the Congress of the United States cannot agree on whether to extend unemployment benefits for those families -- what happens to families at that point?

An opinion piece in U.S. News & World Report -- written by journalist Susan Milligan -- explains the recent political logjam and its ramifications that send are sending ripples across working class America. In the political world of Washington D.C., if a political party wishes to block legislation -- no matter that it would offer vital sustaining resources to millions of people across the country -- it can do so. For example, the Republicans in Congress have been insisting that the Bush-era tax cuts, which the Obama Administration wanted to bring to a halt so that a middle class tax cut could be offered to Americans, be continued. It is well-known that the Bush tax cuts helped "millionaires, billionaires" and otherwise the wealthiest Americans, so Obama campaigned on the promise to let those tax cuts to the wealthiest Americans expire in December, 2010.

But the Republicans do not want the tax cuts to the wealthy to expire, so they have refused to support the Democrats' strong desire to extend unemployment benefits to that part of the working class labor force that is unable to find work. Milligan writes "Extending the tax cuts to the wealthiest, while keeping them for the middle class, would add $700 billion to the deficit" (Milligan, 2010, p. 1). So the way Milligan sees this political strategy is that "…the neediest are being held hostage." That having been said, at the time of this writing, a deal appears to be in the works between the White House (Obama and the Democrats) and the Republicans, to keep the tax cuts and also extend unemployment benefits as well, the deficit be damned.

Analysis of the unemployment insurance stalemate

In a two-party system there will always be differences, debates, even mean-spirited rhetoric between the parties. But when some of those differences lead from a simple argument -- diversions on social or economic policies -- to vicious public smears and entrenched ideological meanness, it demeans the institutions that govern America. The recent stalemate that negatively affected the lives of millions of unemployed people simply showed the nation once again how divided the country is, as reflected in the stubbornness of both sides to reach a compromise. But the onus is on the Republicans this time, because the tax cuts that the Bush Administration pushed through were wrongheaded in the first place. As Milligan points out, the country really could not afford those tax cuts to begin with.

It was an "historic anomaly" to institute a huge, multi-billion-dollar tax break in the middle of a war, Milligan explains. And further, many of the big-money folks who benefit from the tax breaks "were rightly excoriated a year ago for running the economy into the ground, playing virtual video games with folks' retirement funds" and gathering in unbelievably large bonuses in the process. In short, refusing to help the poorest people in the economy, and the people of middle class means who are out of work and struggling to put food on their tables, is unconscionable, tax break leverage notwithstanding, and politics notwithstanding. Think about it for just a moment: 9 million Americans are watching their unemployment benefits -- for the great majority of them their only lifeline saving them from homelessness -- run dry while high rollers, millionaires, Wall Street executives and other wealthy Americans have their hands out wanting a tax break on top of their affluence. There is something seriously wrong with this picture.

Obesity rates climb during a down-spiraling economy -- another negative spin-off

An article in the scholarly Atlantic Economic Journal explains that while the obesity rates in the U.S. "…are among the highest in the world" many Americans (already overweight) have responded to their "economic woes" by "showing less interest in eating healthier" and dropping their memberships in gyms (Fitzpatrick, 2010, p. 119). In other words, people who are in economic tight spots are getting fatter, and more weight put on means the potential for health issues including diabetes and heart problems, which in turn translates into higher healthcare costs.