Why Unemployment Matters

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I wrote earlier about what the jobs numbers mean for the 2012 election (hint: they are not good for the current administration).  But at some level, who cares?  This is the aspect that concerns Washington most, but it is surely the least important consideration:  neither Barack Obama, nor his staff, are going to have any trouble finding new employment in the event that they are terminated come January 2013.


But for people who are not in the White House, the implications really are devastating.  Unemployment is one of the most devastating things that can happen to you in American society.  Long-term unemployment is expecially bad--and that's what we're suffering from. It has been at unprecedented highs in this recession. You can see the job market story in three graphs from the BLS JOLTS survey, which measures turnover.

Screen shot 2011-07-08 at 5.11.01 PM.png


The above graph shows separations, hires, and the unemployment rate.  What it shows is that separations didn't rise during the recession--except for a brief uptick during the financial crisis, they actually fell.  That seems to be because people stopped quitting their jobs, which by late 2009, is offsetting layoffs:
  Screen shot 2011-07-08 at 5.11.18 PM.png

But as of April, the latest JOLTS data that's available, hiring had only recovered slightly. (And of course, in the last two months, it basically fell back to zero net new jobs.)  That means that we're left with a giant overhang of unemployed people.Screen shot 2011-07-08 at 5.11.35 PM.png

That's why long-term unemployment has become such a problem.  Our unemployment problem is not, as in previous recessions, that too many people are entering unemployment. Layoffs and discharges are actually lower than they've been in a decade.  Rather, our problem is that people aren't exiting unemployment.  And that's a much bigger issue.

Human capital is like almost any other form of capital: it is a depreciating asset.  The longer you stay out of the workforce, the less valuable you are to potential employers.  You lose market intelligence and industry connections.  Your technical knowledge and skills atrophy.  And as my colleague Don Peck wrote in a devastating piece last year, the psychological effects of long-term unemployment change you permanently.  Many of the people who have now been unemployed for years may never work again, or not at anything like the income that they had been expecting.

I was unemployed for basically two years between the time I graduated from business school in 2001, and the time I accepted a job with The Economist in 2003.  I was much luckier than most people in that situation, both because my parents let me stay in their spare bedroom, and because I was working during much of that time--freelancing, flirting with a start up, doing some tech consulting, and of course, working in a trailer at Ground Zero.  But none of these were permanent, and at the time, it wasn't clear that any of them were going to turn into something.  I felt the isolation and the desperate fear of everyone who doesn't have a "real job", the people who don't know how they're going to earn enough over the next forty years to keep body and soul together.  I experienced real despair for the first time in my life.  And it changed me, permanently.  

The least important change was the one that is best measured: people who have a bout of unemployment at the beginning of their careers still earn less than their peers ten years later. What really matters is how it changed my outlook on the world.  I became afraid then in a way that has never really left me.  I obsess about economic security.  I catastrophize small setbacks. Before 2001, I was fairly blithely indifferent to the prospect of misfortune; now I spend an awful lot of time cataloguing everything that could possibly go wrong.  My grandfather used to hide pretty substantial sums of money around the house, the legacy of the Great Depression's bank failures, which I thought was very funny. Now it sounds sort of sensible.

There was also the crushing sense of isolation, and failure.  I avoided friends who found my unemployment an awkward topic of non-conversation.  I couldn't do much of anything else, because I didn't have any money.  And dating was . . . awkward.  I remember being on a date with someone who took me to see Avenue Q.  It was a great show--but hard to enjoy as I writhed at its similarity to my own life, and at what the guy next to me must be thinking. (We ended up dating for years, and when I finally told that story, much later, he was incredulous. "Are you nuts?"  Yes, yes I was.)

When I was finally offered a job by The Economist, I was taken aback; I had stopped believing anything good would happen, ever.  Then I blurted "I'll take it" before I even asked how much it would pay.  As soon as I got off the phone with my new boss, I called my boyfriend (Avenue Q guy, now a year in), said "I got a job", and then, to my surprise and horror, burst into tears.  It is the only time in my life, except for my wedding, that I have cried from joy.

And that's what happens to the long-term unemployed who were young and flexible when it happened, who find awesome careers that are way better than the career track they got knocked off of, who had terrific familial support, and enough temporary or part-time work to have no immediate fears about where their next meal was coming from.  Now think about what is happening to millions of people out there who don't have that: whose savings and social networks are exhausted (or were never very big to begin with), who are in their fifties and not young enough to retire, but very hard to place with an employer who will pay them as much as they were worth to their old firm. Think of the people who can't support their children, or themselves.  Think of their despair.

That is what these numbers mean: millions of people, staring into the abyss of an empty future.  We don't know how to re-employ them.  The last time this happened, in the Great Depression, World War II eventually came along and soaked up everyone in the labor force who could breathe and carry a toolbag.  I hope to God we're not going to do that again, so what are we going to do with all these people?
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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