Once again, since apparently I have nothing better to do, I was surfing and came across this interesting article. Since the advent of the Great Recession, one of the factors that has kept commenters commenting and economists scratching their heads has been the intransigence of the United States unemployment numbers. No matter how much quantitative easing (i.e. paper money) Mr. Bernanke throws at the economy and no matter how much he drops interest rates, people who are out of work seem to stay out of work and companies just don’t seem to be hiring. This has to really annoy Mr. Bernanke; without jobs, people are unlikely to borrow too much money, buy too much house and otherwise spend way over their heads. That leads to stagnancy in the economy and could possibly bring about the central banker’s worst nightmare; the dreaded spectre of deflation. Just think of the sleep that would be lost by central bankers around the world if prices would actually drop! Why consumers would stop spending and wait until prices became more attractive before they parted with their hard-earned dollars.
The team of Andrew Sum and Ishwar Khatiwada at the Centre for Labor Market Studies at Northeastern University completed a study entitled "Labor Underutilization Problems of U.S. Workers Across Household Income Groups at the End of the Great Recession: A Truly Great Depression Among the Nation’s Low Income Workers Amidst Full Employment Among the Most Affluent" (pant, pant – my fingers are tired now) in February 2010. While the title is a bit of a mouthful, the paper is a gem among gems when it comes to explaining the socio-economic disparity among the unemployed in America.
Before I go into what the paper outlines, let me briefly give you the most recent unemployment statistics for the month ofNovember 2010 from the Bureau of Labor Statistics (BLS). The unemployment rate (U3 rate) edged up 0.2 percentage points to 9.8 percent and there were 15.1 million unemployed Americans. There were 6.3 million long term unemployed (at 27 weeks or longer) and they made up 41.9 percent of the total unemployed. According to the Shadow Government Statistics (SGS) website, the broadest measure of unemployment (U6) stood at 17 percent and the SGS Alternate unemployment rate (includes those who are long-term discouraged workers) stood at nearly 23 percent. Now that we have the numbers in perspective, we’ll go back to the "Labor Underutilization…" paper.
In their paper, Sum and Khatiwada examine which American workers have been most affected by the Great Recession. From BLS statistics, we can readily see which age group, gender or race have the highest unemployment rates. For example, the unemployment rate of African American males over 20 years of age was 16.7 percent in November and that the unemployment rate for laborers that did not have a high school diploma was 15.7 percent in November compared to 5.1 percent of the work force that had a Bachelor’s degree or higher. BLS statistics show us that, generally, if you have a poorer education and are Black or Hispanic, you are more likely to suffer from unemployment. What we don’t see from government statistics is an analysis of unemployment and underemployment (those who are working part-time for economic reasons) by income group/socio-economic status. As background information, on average, underemployed workers only get 22 to 23 hours of work per week compared to 43 hours per week for full-time workers.
Sum and Khatiwada took all of the household incomes of the United States for the year 2008 and divided them into 10 groups or deciles with the bottom decile consisting of households making an annual pre-tax income of $12,160 or less and the top decile making an annual pre-tax income of $138,800 or more. Here’s how the deciles break down for 2008 and their accompanying incidence of underemployment for the October to December 2009 period from the United States Census Bureau Current Population Survey (CPS) data for that period:
Decile Income Range Incidence of
First $12,160 or less 20.6
Second $12160 to $20725 17.2
Third $20725 to $29680 12.7
Fourth $29680 to $39000 8.3
Fifth $39000 to $50000 6.1
Sixth $50000 to $63000 5.4
Seventh $63000 to $79100 4.4
Eighth $79100 to $100150 3.6
Ninth $100150 to $138700 2.5
Tenth $138700 or more 1.6
Notice that the incidence of underemployment falls very steeply as income level rises. By the time respondents reached the sixth decile, unemployment is negligible especially if one subscribes to the theory that full employment is reached when unemployment stands between 4 and 6 percent. The underemployment level at the lowest income level is nearly 13 times that at the highest income level. This tells us that the burden of underemployment in the United States has been borne disproportionately by those in the lowest income levels. This order of magnitude higher rate of underemployment at lower socio-economic groups impacts the growing division between the haves and the have-nots in American society and at least partly explains the growing socio-economic polarity in the United States.
Sum and Khatiwada go on to calculate how income level relates to hidden unemployment, those workers who wish to work but are not actively looking for work in the survey period so are not counted as unemployed by the Bureau of Labor Statistics. The authors classified these workers as the under-utilized pool of labour; the sum of the unemployed, underemployed and the hidden unemployed. Although the income decile ranges changed slightly to accommodate the data from the fourth quarter 2009 CPS survey data (lowest decile is $12,499 or less and highest decile is $150,000 or more), the conclusion is similar. The lowest income decile suffered from a total unemployment rate of 30.8 percent and the underemployment rate was 20.7 percent. This compares to 3.2 percent unemployment and 1.6 percent underemployment at the highest income decile as shown in this chart:
Using this analysis, the rate of total unemployed at the lowest income group is the same or higher than the unemployment level that was experienced by all workers during the Great Depression. Not only do the lowest income Americans suffer from the highest unemployment rates, they also suffer from the highest underemployment rates.
The impact of the Great Recession has and continues to vary greatly with the socio-economic status of the American workforce. Workers at the top and bottom of the income ladder have had vastly different experiences during the Great Recession of 2008 – 2009 with workers in the upper income echelons feeling minimal impact on their employment status compared to those at the lower levels. It will be interesting to see how long it takes for the lowest deciles to benefit from an economic upturn should one take hold.
Click HERE to read more of Glen Asher’s columns.
Here is the link to the Sum and Khatiwada paper.
Here is the link for the United States Department of Labor Current Population Survey Labor Force Survey website.
Here is the link for the United States Census Bureau Current Population Survey for 2009 webpage.
This chart shows the breakdown of various issues by income grouping including family size, labour force participation etc.