Sunday, January 01, 2012
Point/Counterpoint: The bad news: Joblessness is hard to shake
In our weekly Point/Counterpoint feature, we invite knowledgeable people (usually two) to express their views on a current topic. After reading each other's columns, our guests then write rebuttals on the RoundTable blog, where readers can join in the conversation.
Recent Point/Counterpoint essays
- Filling voids is extension of mining
- Bill voids landowners’ right to property
- Make home-school league stronger
- Archive
From the RoundTable blog
Latest entries
The U.S. labor market looks bleak going into 2012, particularly for older Americans and minorities. The total unemployment rate for the third quarter of 2011 was 9.1 percent, a reduction of 0.4 points from a year before, but much above the optimal unemployment rate of close to 5.5 percent. For blacks, the unemployment rate was 16.5 percent, up modestly from 2010, and is particularly high for blacks ages 20 to 24 (27percent).
Once blacks lose their job, it takes an average of 47 weeks to find a new one, compared to 41 weeks for the typical American. The average unemployment spell for adults aged 55 to 64 is more than a year compared to 36 weeks for 25- to 34-year-olds.
Long-term unemployment has severe negative effects on both the economy and the individual. Expenditures for unemployment insurance, Medicaid and other welfare subsidies rise with greater unemployment, while tax revenues fall, adding to our deficit woes. Additionally, the productivity of the unemployed individual is forever lost, reducing national output and income.
In addition to lost income, there are substantial indirect costs associated with unemployment. These include increased depression, self-esteem and reduced employability. The longer an individual is out of work, the more his or her skills depreciate. Skill depreciation reduces the chances of employment, particularly if competing against someone with a shorter unemployment spell for a particular job. Depression and loss of self-esteem can accelerate skill depreciation, compounding the social costs of unemployment.
Going into 2012, the labor force is brimming with individuals, particularly older Americans and blacks, who have been out of work for about a year. There is a fear that these individuals, originally unemployed because of the downturn in the economy, will become structurally unemployed. Structural unemployment is due to a mismatch of skills. The skills employers are seeking do not match those of the job seekers. This is a difficult policy issue to address, particularly when deficit spending would be required to establish additional job-training programs.
For older Americans there is an additional worry. A 55-year-old experiencing an unemployment spell of a year or more will have little time to work and save for retirement. During the period of job loss, it is likely that savings are depleted to purchase the items typically bought with labor income. Employers will rationally choose to invest in job training for younger workers for whom they have a longer period to recoup their training costs. Financing older Americans' lost retirement savings will be a considerable policy issue in the future.
While signs of economic recovery carry us into the New Year, severe labor market troubles continue to lurk and dampen economic growth.
