Today the topic of unemployment is foremost in the minds of many. With the highest unemployment rate in decades and the worst economic situation since the Great Depression, with no end in sight, most Americans either know someone struggling or effected by unemployment or are fearful for the security of their own jobs. It has become a very contentious and emotional problem.
According to the Bureau of Labor Statistics, the official national unemployment rate in January 2011 is 9.8% , in December of 2009 it was 10%. So there has been minimal strides made in making a dent in the Unemployment rate. Some states are experiencing even more dire official unemployment figures, Michigan came in with the highest figure of 14.7%. The national U6 unemployment rate is listed at 17.3 % for the same period. The U6 rate actually is the more accurate measure.
When one starts examining the numbers more closely, things are even more concerning, especially between the sexes, among minorities, different age groups and education levels. Recent college graduates are having a particularly hard time in this market and men in general have taken a huge hit during this crisis. Not to forget to mention, the underemployed which is a related but it is a side issue.
Of great concern right now is the number of long term unemployed. During a crisis of this magnitude, the long term unemployed cause a drain on resources and don’t add to the productivity of society. This obviously causes many issues, from effecting consumer behavior and consumer confidence, as well to a rise in public services required to help these people survive. Thus, long term, high unemployment effects tax bases, causes an increase in social programs such as welfare and Medicaid, which is a drain on states tax roles, as well as increased Unemployment taxes for employers. Some evidence suggests this situation takes a toll on other factors as well, such as criminal activity and increased use of drugs and alcohol.
The domino effects created by long term, high unemployment can have dire consequences on all elements of the economy and society. Thus, less income means less spending, this leads to fewer customers and less profit for business and less taxes collected by local, state and federal governments. While it increases expenditures by the different government agencies.
During periods experiencing “normal” economic conditions some unemployment is to be expected. Frictional and structural unemployment is inevitable. With this in mind, conventional wisdom cites 5% unemployment to be the high end as an acceptable rate as a percentage of unemployed, thus deemed to be a positive indicator of near full employment.
The problems facing the unemployed in our current situation are many. Unfortunately, for many, the market for unskilled labor in the United States is dwindling. Due to efforts to increase global trade, with lower tariffs, “free trade agreements”, ease of international shipping, technological advances and lower labor costs in other lands, industry is not likely to return those jobs to the United States. Therefore, many of today’s American unemployed are not prepared for the new realities facing them.
In addition, a lack of adequate training and without the proper knowledge, including multi lingual abilities, leaves many Americans ill prepared to face competition for jobs in a global marketplace. This situation provides further opportunity for companies to look outside the United States for the appropriate skills they need in a global marketplace. However, it leaves many Americans, especially older ones nearing retirement age, without the ample skills and thus opportunity to compete with younger, more aptly educated in other countries.
Combined with the changes in industry, technology and educational requirements, many American workers are not prepared for the new world in which they find themselves. Add to that the current economic crisis and lack of available well paying jobs, many are without the ability to support themselves thus relying upon government and public assistance to provide for their basic needs. However, most public programs, including unemployment do not provide adequate income to keep these individuals out of poverty.
There is a school of thought, that these safety net programs create a culture of dependence upon society. Personally, I think this idea is hogwash. While I understand the idea that “people respond to incentives”, and don’t necessarily disagree, the idea that safety nets are an excuse for unemployment is simply not realistic in my mind. I suggest that those who make such statements and believe such ideas have never attempted to live on the measly amounts provided for from unemployment or welfare.
The problem with that type of thinking and analysis is that it doesn’t address the actual dollars and cents of the equation. For example, let’s take the unemployment insurance program in the state of New York. In New York State the maximum any unemployed worker will receive from their unemployment insurance is $405.00 per week, gross. Income taxes are payable on that amount. $405.00 per week for 26 weeks is usually the maximum unless legislation is enacted to extend the benefit during period with long unemployment. At best $405.00 per week equates to $21, 060 gross annually, or $1755.00 monthly, which is below the federal poverty level for a family of four. The 2009 poverty level for a family of four is $22,050 annually.
Now if a person was making $2000 per week before the found themselves unemployed, this is a drastic decrease in income and thus probably is not sustainable for that individual. In so far as people who made less while employed their benefit will reflect that reality. Thus if someone was making $400.00 per week or $10.00 per hour and was laid off, their unemployment benefit in NY State would be about $230 per week. Thus effectively cutting their weekly income in half. New York State is actually quite generous, some states the maximum benefit, regardless of income made is much less. In this situation, the person now only has a potential yearly income of $11,960 or $997 per month. Well below the poverty rate for a family of four and barely above poverty for an individual.
Welfare benefits are not much better, if someone finds themselves in need. First of all eligibility requirements vary depending on the services requested. From Medicaid to food stamps and other economic assistance, these policies vary by state and by level of income and assets, as well as which benefit is being requested. Using the New York State website, for example, provides the limitations of these programs. Unless there is an individual with a disability in the household or children, the program does not provide much in the way of assistance, contrary to popular mythology. The food stamp program has one set of requirements and eligibility criteria, while medical assistance has another and cash assistance has yet another.
To insist that these programs provide too much and thus discourage incentive to work is only true because many jobs simply don’t pay enough to be worth one’s while, not necessarily that the safety nets cause a disincentive to work. A quick perusal of the want ads these days shows many jobs with pay starting around $10 per hour that is with experience and education. Entry level jobs are starting just slightly above minimum wage. Many jobs which require education and experience pay in the $30,000 per year range and provide yearly merit increases of 3-5%.
At that rate, it becomes difficult for individuals to gain economically, thus with wages so low, it isn’t that government programs create dependency, but rather that the private sector is not providing enough incentive and the government programs while not lucrative are equitable to the private sector wages. So the question should be, why would anyone choose to work for an employer who doesn’t value them enough to pay them a living wage?
By doing the math, it becomes apparent that work isn’t worth the effort when productivity is not valued. It is a business decision, on behalf of those who make the decision to continue on government assistance or who choose to stay on unemployment benefits, rather than a dependency decision.
It all depends on one’s perspective of the situation. For those who have never experienced this situation, they may misread the intentions of those in the situation. The incentive to work or not to work is not because there is a safety net; but rather the incentive to work or not work is predicated on the value paid by the employers of the work. If people don’t feel valued and don’t feel there work is being compensated appropriately they simply won’t have an incentive to work.
Now the impulse of many is to do away with the safety nets to encourage more to take “any” job. Well, in a situation like the one we have today, where there are too many unemployed and not enough jobs to accommodate the unemployed; all that dismantling of safety programs would do is leave more to be unable to survive in anyway, shape or form and decrease the value of labor, thus bringing wages down further. That wouldn’t be good for society as it would create further income inequality and less money being spent in the economy. In addition, it would lead to higher crime and civil disorder.
As we know supply and demand applies to all markets, including the labor market. Since supply of labor for most positions is high now and demand is low, wages are lowering as a result. Many labor markets are shrinking and many are being forced to take pay cuts or reductions in hours.
While productivity is high, this situation is causing overload, burn out and discontent on many of the people who are producing at high levels but not reaping any economic reward for their labor. Due to the high levels of unemployment and long term unemployment during this time, most are not able to look for work which is more suitable or that is less demanding. The fear of losing their income is also a substantial factor and thus provides incentive to keep working hard, even though the individuals are not reaping adequate rewards for their work.
This causes an interesting dichotomy of which the solutions may not be desirable for society as a whole. How long can this situation go on unabated? What will the eventual outcomes be for society and individuals if this situation continues for too long?
There are many who would suggest that minimum wage laws and unions are an impediment to job creation and job growth. I have mixed thoughts on those subjects, while on the one hand, I can see part of the argument, on the other, I must say “hogwash”.
It is my belief that too many businesses simply don’t value their workforce. They pay as little as they can to the majority of their employees, the ones who are actually necessary to ensure the production of the company’s goods and services are provided to the customers and pay too much to select members of the organization who provide nominal value to the company but are perceived to have high value.
Something is wrong with the compensation at most large organizations. While I understand the “theory of supply and demand” I suggest that the supply of able, competent managers, sales people, accountants, supervisors is much higher than the evidence suggests. Due to the hierarchal nature of most organizations and the limited number of positions within them that pay large wages, the pool of potential candidates is not limited by credentials and capabilities, but rather it’s limited by insider politics and other factors not related to competence; such as loyalty, seniority, personal preference of higher level personnel, personality and other hard to quantify attributes.
In addition, it is my belief that paying the lowest wages possible for labor is not necessarily the most beneficial business strategy to ensuring quality of workers nor high production. The efficiency theory of wages, in my mind may be a better long term economic strategy for employers to consider. I am of the mindset that you “get what you pay for”. Thus if you pay low wages, you will attract lower quality employees, which is not necessarily the best way to provide for the long term prosperity of a business and probably isn’t good for society either.
While the economic conditions and unemployment situation is rather dire, the possible solutions to our problems are equally complex. There are many theories and methods being proposed to rectify the situation. However, at this point there is no real consensus as to the best methods to alleviate the problem. There are various ideologies and political ideas being proposed, each with their own possible positives and negatives.
Personally, I am of the belief that the solution to this mess is a complete rethinking and reevaluating of our old paradigms and looking to new long term solutions, not just short term “band aids” and “bubbles”. In my opinion, government investment in research and development can spur some new innovations which will lead to private investment in new business ideas. Another thought, is for the government to provide direct loans, as investments, to would be unemployed entrepreneurs who are unable to receive funding for their concepts from the private sector, these new businesses could spur a new wave of opportunities for many who are currently unable to find viable work.
This current crisis could provide an opportunity for people to reinvent themselves and for new ways of thinking about economics and our society as a whole.
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