(New York Times)-The Labour Department reported on Friday that the US economy lost 345,000 jobs last month – an improvement over the much larger monthly losses recorded since October, but still abysmal. To keep the unemployment rate from rising, the economy needs to add jobs every month. So even though the pace of job loss slowed, the unemployment rate rose to 9.4 percent – a 26-year high, representing 14.5 million people. Barring an economic miracle, unemployment will hit and probably surpass 10 percent this year. Joblessness is always painful, but it is bound to be especially harmful in this recession because of the way it interacts with the housing bust and credit freeze. Already, rising unemployment is driving a new wave of foreclosures, which will further erode house values and hurt consumer confidence. Job loss combined with falling house values makes it harder for people to move to find a new job, prolonging spells of unemployment; in May, 27 percent of unemployed workers had been without work for more than six months. More foreclosures also hamper banks’ ability to resume normal lending.
As unemployment worsens, it has an increasingly negative impact on employed people. In the first year of the recession, from December 2007 to December 2008, wage growth held up relatively well, outpacing inflation. But in May, the growth in weekly paychecks, which captures cutbacks in hours, contracted at a 2.3 percent annualized rate. A combination of rising unemployment and collapsing wage growth can only constrain consumer demand and with it, economic recovery.
Beyond a generalized sense that ‘this too shall pass,’ no one seems to know just how robust employment – good jobs with good pay – will resume. In past recessions, manufacturing, especially the auto industry, has been an engine of job recovery. That engine is unlikely to be as powerful this time.
Starting with the June employment report, policy makers will begin to see the extent of the job loss from the bankruptcies of Chrysler and General Motors. Estimates by the Center for Automotive Research are 63,000 permanent job losses this year and 179,000 next year, if the bankruptcies go smoothly. If the companies get mired in the process, the losses could be much higher. An even bigger unknown is how many people the carmakers will employ once they’re restructured.
One thing is clear: Some of the jobs lost in this recession are never coming back. And the promises of replacement jobs, in green technology, for instance, remain more a promise than a reality. The Obama administration has been on top of relief efforts, extending and enhancing unemployment and public health benefits and providing a big, early dose of fiscal stimulus (though more will probably be needed).
It has been less vigorous, so far, in its vision and plan for the future. If a jobs recovery is left to its own devices, we could repeat the pattern of the last recession and recovery, in which economic growth resumed but never really benefited most working Americans in terms of pay, wealth or sustainable upward mobility. That would be tragic.