How the Recession Helps the Employed

While the jobless fall further behind

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There's a "perverse, and mostly overlooked, silver lining" to this recession, notes The New York Times' David Leonhardt. People who do still have jobs are earning more. Inflation has plummeted, increasing the purchasing power of a dollar. Meanwhile:

Since this recent recession began in December 2007, real average hourly pay has risen nearly 5 percent. Some employers, especially state and local governments, have cut wages. But many more employers have continued to increase pay.

That makes this recession strikingly different from the one in the mid-'70s. It also means "the contrast is pretty stark," in society: "The typical jobless person has been out of work six months. The typical worker has received a raise." There are other elements of the column, but this "silver lining" for the employed is getting the most play.

  • The Need for a New Safety Net  "The overriding impression [in this column]," muses Reuters's Felix Salmon, "is of most Americans actually doing OK, with an unemployable underclass bearing the brunt of the recession." Salmon seems to be focusing both on Leonhardt's observation that unemployment correlates closely with lower education levels, and his observation that unemployment is likely to be a long-term issue. But "the problem is that persistent unemployment at or around 10% is unacceptable in the U.S., especially with the social safety net being much weaker here than it is in Europe." The European nets aren't perfect either, he admits, but the bottom line is that since we're unlikely to think of easy fixes for the economy, "we need to help the long-term unemployed."
  • When the Unemployed Become Unemployable  DougJ at Balloon Juice echoes Salmon's concern: "People who are unemployed for long periods of time run the risk of becoming, in effect, unemployable for one reason or another. Quite simply, our system is not set up to handle a large unemployable class."
  • This Wage-Growth Talk Is 'Misleading,' protests Dean Baker at the Center for Economic and Policy Research.
All the real wage growth in this downturn occurred in the months of November and December of 2008. This was due to a plunge in the price of oil and other commodities. Since December of 2008 real wages have stagnated.

The wage growth in those two months also followed 6 years of wage stagnation. Essentially, nominal wage growth was eaten up by rising commodity prices during the upturn. These gains were then realized when prices crashed, but it is misleading to imply a pattern of consistent wage growth during the downturn.
  • A Shifting Economy  "To those observations," writes economist Tyler Cowen of Leonhardt's column, "I would add that corporate profits are doing fairly well." He says, too, that it's probably both incorrect and unfair for some to be blaming the unemployed (the argument is that they are, unreasonably, holding out for higher wages than they can get). "I sooner think of these unemployed individuals as having gone down economic corridors which are no longer promising and not facing any easy adjustment to set things right again."
  • Forgive My Lack of Celebration  "The left is pulling out all the stops to try to convince you that the dreadful economy is somehow a good thing," snarls irate blogger 3 wood. "What's next, the New York Times saying that all the empty houses are a good thing because it cuts down on traffic for everyone else in the neighborhood? Or how about an article saying that folks being broke and unable buy food is a good thing because then the grocery store lines are shorter for the rest?"
This article is from the archive of our partner The Wire.