The national unemployment stands at about 9.5%. The Federal Reserve has revised its forecast of U. S. unemployment for 2009 and 2010:
The predictions are based on what the Fed calls its “central tendency,” which exclude the three highest and three lowest forecasts made by Fed officials. The central bank also gives a range of all the forecasts. That range showed that some officials expect the jobless rate could rise as high as 10.5 percent this year, and 10.6 percent in 2010. The post-World War II high was 10.8 percent at the end of 1982, when the U.S. had suffered through a severe recession.
The Fed’s prediction is for a slow recovery.
The last two economic recoveries were marked by sluggish job growth. Most authorities predict much the same thing this time around.
The circumstances this time around are different, however. With the large inventory of unsold houses following the collapse of the housing bubble, it’s not very likely that home construction, which has lead the way to recovery after previous downturns, will serve that function this time and, honestly, I think it’s more likely that we’ll see increased job losses in that sector than job growth.
None of the efforts of the federal government to date are likely to produce rapid job growth which is what would be necessary to reverse the more than 4 million jobs lost since the recession began. the structure of our economy has changed dramatically since the WPA days. Infrastructure projects are no longer a matter of hundreds of men with shovels but of a handful of men with power equipment. Construction firms already have the power equipment.
While Waxman-Markey may produce some “green jobs”, I’ll be nonplussed if their number exceeds the number of jobs the provision destroys. If healthcare reform produces more jobs, their number is likely to be few.
Here’s my question: what will the implications be if the unemployment rate remains at 10% or more over a period of years?
I’ll speculate on just a few. First, the demands for additional government services at all levels will be very high. There will be continued calls for the extension of unemployment benefits, the Medicaid rolls wil increase, and other forms of aid will see increased demands.
Second, although revenues for government at all levels but particularly for state and local governments will go down, there will be pressure to avoid layoff by these governments. I honestly don’t see how that conflict can be resolved. Total tax rates are at historically high levels already and the moves by the federal government lately will push them higher.
Third, I suspect we’ll see an increase in crime.
Thoughts?
The graphic above is taken from the Brookings Institution paper “Social Protection for the Economic Crisis: the U. S. Experience”
Just a couple of observations. I’m hearing reports that environmental engineering and consulting firms are laying off around 20% of their staff. The slowdown in the general economy has severely reduced demand for people to put together the permits to build new plants or conduct due diligence inquiries for property transactions. So I think it’s really an open question as to whether any new green jobs will bring us back to the previous level.
Second, the government layoffs in Illinois that are being thrown around seem to be perversely affected by the extent federal money is implicated. Thus, few job losses in areas of transportation and environmental regulation, but cuts in law enforcement, prisons and social welfare programs.
More generally,
I expect longer periods of education, with more college students going to graduate school and more high school students going to community colleges. More student debt.
I also expect increasing pressure on the 40 hour workweek. Less income with more time on their hands. More bloggers and gardeners?
PD – I here same. And so more coffee shop philosophers.
I know, a flip remark. More later.
I think the reason this is such an important topic is that it is so likely.
By the way, I’m more pessimistic, and believe we could easily experience a 10.5% rate based upon 1) the increasing costs of employing and the uncertainty current policies are thrusting upon businesses, 2) the full realization of the cyclical effect in commercial construction, 3) no asset (like real estate) to propel the economy as it has in recent recessions.
European experience reflects PD’s observation of extended college stays and pressure on work week hours, not to mention those extended coffee house years.
I’m not optimistic that the electorate will wake up and say “enough.” The quality of public debate is low. An understanding of economics and what drives small business growth is almost non-existant these days. And tax incidence (and the growth of a permanent entitlement class) has become so skewed that a voter revolt is not at all likely. As evidence I would cite the almost suicidal paths voters have allowed in California, Michigan and now Illinois.
So yes, it means higher levels of taxation to fund demand for government services, slower growth, permanently high levels of unemployment, and overall lower standards of living.
Sadly, this also implies a further widening of living standards in the country. The rich will still be rich. But those trying to climb that economic ladder will find it far more difficult. And so many more will find themselves stuck in perpetual mediocrity.
So unneccesary.