The Economic and Social Costs of Unemployment - Essay Example

The Economic and Social Costs of Unemployment Unemployment, especially a massive one like in U. S., which “jobless rate rose 0.2 percentage point to 9.6%, the highest level in 26 years” (Bloomberg News Survey, as cited in “Unemployment rises in US,” 2009, par. 1) indicates economic downturn and it is undesirable to everyone – individuals, business, and the government not only because of its financial cost but even more so of its social costs. Immediately felt is its economic costs. “The massive destruction of jobs is fueling a downward spiral, in which unemployment depresses consumer spending, retail sales and business investment, which in turn lead to further layoffs” (Greypar. 25). Unemployment jeopardizes “private sector earnings and personal income [which] spell disaster for state and local budgets” (Eley, 2009, par. 14). In fact, the first quarter of 2009 saw a 26% decrease in state level income collections (Nelson A. Rockefeller Institute of Government, as cited in Ibid), which predictably will be worsened by ‘declining revenue from real estate and sales taxes’ (par. 16). It “will punch still deeper holes in the budgets of many states [and] increases the risk that state budget agreements for 2009-10 will not close budget gaps completely, and that states will need to make midyear budget cuts” (Ibid). Furthermore, claims for jobless benefits will surely rise, widening budget gaps. With a deficit budget, social services would surely suffer. As what had happened, “many of these workers, without paychecks or medical insurance and having exhausted their unemployment benefits, are confronted with foreclosure on their homes, evictions and the threat of destitution” (Damon, 2008, par. 2). Even services for learning are affected. As a local resident in Maryland, Patricia H. Fisher, stated: “I am distressed that the library, which is seeing increased usage due to the economy, will have to limit its hours, services and maybe locations just when the community needs those services the most” (Fisher, as cited in Eley, 2009, par. 12). References Damon, Andre. (2008). Long-term unemployment in the US climbs 37 percent in one year. World Socialist Web Site. 8 July Retrieved 9 July 2009 from http://www.wsws.org/articles/2008/jul2008/econ-j08.shtml. Eley, Tom. (2009). Unemployment crisis grips US states. Global Research Article 22 June. Retrieved 9 July 2009 from http://www.globalresearch.ca/index.php?context=va&aid=14050. Grey, Barry. (2009). US unemployment rate at 7.2 percent after biggest yearly job loss since 1945. World Socialist Web Site. 10 January Retrieved 9 July 2009 from http://www.wsws.org/articles/2009/jan2009/jobs-j10.shtml. Unemployment rises in US at slower pace: economists. (2009). The Financial Express. 29 June. Retrieved 9 July 2009 from http://www.financialexpress.com/news/Unemployment-rises-in-US-at-slower-pace-economists/482397/. Appendix A Two Recent Articles on the Unemployment in the U.S. Article 1 Title of the Article: Unemployment crisis grips US states Author: Tom Eley Date: 22 June 2009 Source: Global Research.ca Link: http://www.globalresearch.ca/index.php?context=va&aid=14050 The unemployment rate increased in 48 of 50 states and Washington, DC, in May, according to US Department of Labor statistics. For the year as a whole, the jobless rate has increased in every state, and in eight states it is now at its highest level since 1976, when monthly state-level statistics were first issued by the federal government. The national jobless rate in May rose to 9.4 percent. The state of Michigan again had both the highest unemployment rate in the nation at 14.1 percent, and its biggest monthly increase, up 1.3 percentage points from 12.9 percent in April. Michigan, Indiana, and Ohio have been devastated by the shutdown of auto plants and their suppliers, orchestrated by President Barack Obama's Auto Task Force. In Ohio, unemployment increased to 10.8 percent, and in Indiana it rose to 10.6 percent. The Midwest as a whole had an unemployment rate of 9.8 percent. Kentucky, whose economy is also tied to the auto industry, saw its unemployment rate increase to 10.6 percent. California, the nation's most populous state with about 37 million residents, lost the largest number of jobs, and its unemployment rate rose to 11.5 percent, the highest level on record and an enormous increase over May 2008, when the rate stood at 6.8 percent. There are now 2.1 million officially unemployed in the state, 885,000 more than last May. California has been hammered by a near-bankruptcy of the state government (14,000 public sector jobs were lost in May), the housing crisis (10,000 construction jobs lost) and a sharp fall-off in manufacturing (10,000 factory jobs lost.) Among the regions, the West Coast had the highest jobless rate at 10.1 percent. Oregon, the state with the second highest unemployment rate, saw an increase to 12.4 percent from 12 percent in April. The state's wood products industry has lost tens of thousands of jobs in the past year. Washington state's unemployment rate rose to 9.4 percent in May. In Nevada, unemployment rose to its highest recorded level ever, at 11.3 percent. The rapid increase in unemployment in the Southeast took economists by surprise. South Carolina's unemployment rate surged to 12.1 percent. The state has been hard-hit by layoffs in manufacturing, purging about 30,000 jobs since last May. In one South Carolina county, Allendale, unemployment is over 22 percent. In neighboring North Carolina, the jobless rate rose to 11.1 percent, nearly double the level of a year ago, largely owing to layoffs in banking, furniture manufacture, and metal fabrication industries. In Georgia the unemployment rate climbed to a record high of 9.7 percent. Georgia has been particularly hard hit by the financial crisis, with several regional banks collapsing so far this year. In Alabama, the unemployment rate increased rapidly from 9 percent to 9.8 percent in one month. In Florida, the fourth most populous American state, the jobless rate vaulted to 10.2 percent, its highest level in 34 years. Florida lost 61,000 jobs in May, only slightly fewer than California. Arizona joined Florida as the states with the most rapid increase in unemployment. In Texas, the second most populous state, the unemployment rate increased for the seventh consecutive month and now stands at 7.4 percent. Of the regions, the Northeast had the lowest unemployment rate, at 8.3 percent. Rhode Island paced the area in joblessness, with its rate increasing a full percentage point from April to 12.1 percent in May. Major metropolitan areas are experiencing drastic increases in unemployment, as well. Metro Los Angeles now has an unemployment rate of 11.6 percent. In New York City there were about 360,000 officially unemployed in May, or nine percent of the workforce. In Washington, DC, unemployment rose to 10.7 percent, and in Chicago it climbed to 9.9 percent. The Detroit metropolitan area had the highest unemployment rate of any major US city, increasing to 15.4 percent. It is much higher—close to 25 percent—in the city proper. Only in the sparsely populated states of Nebraska and Vermont did the unemployment rate hold steady. The agricultural states of Nebraska and nearby North Dakota share the lowest unemployment rate, both at 4.4 percent. This may reverse itself as the decline in agricultural commodity prices ripples through the plains states' economies. As always, the official rate belies the true scope of unemployment by removing from the workforce count a large number of workers who are inactive or “discouraged” in seeking work, and by counting as employed those who are only able to get part-time hours. While state-by-state statistics for this expanded definition of unemployment are not available, it is very likely that the real unemployment rate in Michigan is now approaching 25 percent, and that in a number of states, including California, it is around 20 percent. On a national level, this broader rate of unemployment and underemployment stood at 16.4 percent in May. These are near-depression-level figures. Layoff announcements continue. Rupert Murdoch's News Corp. on June 16 announced that it would cut the workforce of its social networking division, MySpace, by 30 percent, dismissing 420 workers. On June 12, Textron announced it would lay off 1,300 workers from its Cessna Aircraft plants in Kansas. Lockheed Martin will lay off 750 workers from its Owego, New York, factory. The Broward County public school system in South Florida is going forward with plans to lay off 400 teachers. Metalcraft, a machine fabricating plant located in the town of Mayville, Wisconsin, said it would indefinitely extend the layoffs of 375 workers who have been out of work since April. This will devastate the small town, which has fewer than 5,000 residents. In one revealing layoff announcement, Hartford County, Maryland, carried forward plans to lay off over 35 employees from its public libraries. It will also likely close a branch, reduce library hours and services, even as patron use reaches an all-time high. “I am distressed that the library, which is seeing increased usage due to the economy, will have to limit its hours, services and maybe locations just when the community needs those services the most,” local resident Patricia H. Fisher told the Baltimore Sun. The first quarter of 2009 has also witnessed a fall-off in personal income. According to data from the Bureau of Economic Analysis (BEA), personal income fell 0.5 percent nationally. In California and Michigan, it tumbled by 0.8 percent. Meanwhile, private sector earnings fell in the first quarter by 1.4 percent nationally, and dropped in all 50 states. The declines in private sector earnings and personal income spell disaster for state and local budgets, already in dire straits in much of the country due to the twin economic and financial crises. According to a recently-released analysis by the Nelson A. Rockefeller Institute of Government, state-level income tax collections fell a staggering 26 percent in the first quarter of 2009 compared to the previous year. The fall-off was most pronounced in the states that have been hardest hit by the collapse in real estate and manufacturing. In Arizona, first quarter personal income tax revenue fell by 55 percent from the previous year; in South Carolina the decline was 38.6 percent; in Michigan, 34.4 percent. California, which is already teetering on the brink of bankruptcy, saw a decline of 33.8 percent in personal income tax receipts. The data bodes ill for the largest US state, which collects nearly half of its state revenues from income taxes, one of the highest proportions in the nation. The drop in personal income tax revenue results from layoffs, wage cuts, and reductions in hours worked. The budget crisis in the states will be aggravated by declining revenue from real estate and sales taxes. The Rockefeller Institute predicted declining revenue will require a new round of austerity measures. It “will punch still deeper holes in the budgets of many states [and] increases the risk that state budget agreements for 2009-10 will not close budget gaps completely, and that states will need to make midyear budget cuts,” the report notes. Some analysts tried to find a silver lining in the latest spate of dismal economic data, latching on to a Labor Department report that found that the total number of unemployed workers collecting benefits fell last week for the first time since January, by 148,000. Now, a total of 6.69 million workers are receiving unemployment benefits. However, as Forbes pointed out, the drop came after 21 consecutive weeks of increases, and about “half of the unemployed have been reaching the end of their 26 weeks of unemployment payments without finding jobs—so they disappear from that unemployment statistic without actually being employed.” The number of US workers filing for new jobless benefits claims also rose last week by 3,000 to 608,000. Obama's economic advisers predicted in January that with passage of the economic stimulus package, the US unemployment rate this year would not exceed 8 percent in 2009. It has already hit 9.4 percent, rendering meaningless the stimulus package's modest promises of job creation. Most economists now believe that the US unemployment rate will top 10 percent by year’s end, and that it could rise to 11 percent at some point in 2011. There is general agreement, moreover, that employment levels and conditions of labor will not return to those that prevailed prior to the financial crisis. This is no accident. The ruling elite, led by the Obama administration, has seized on the crisis as a long-awaited chance to restructure class relations to its advantage for decades to come. Article 2 Title of the Article: US unemployment rate at 7.2 percent after biggest yearly job loss since 1945 Author: Barry Grey Date: 10 January 2009 Source: World Socialist Web Site Link: http://www.wsws.org/articles/2009/jan2009/jobs-j10.shtml US payrolls declined by another 524,000 in December, according to the Labor Department's monthly employment report released Friday, sharply increasing the official jobless rate to 7.2 percent from November's 6.7 percent figure. The December rate is the highest since January of 1993. For all of 2008, the US economy had a net loss of nearly 2.6 million jobs, the worst annual decline since 1945, when the war-time economy was being demobilized. There is more than symbolism in the parallel to the post-Depression era. The December jobless figures reflect an accelerating contraction, with 75 percent of 2008's job losses—1.9 million—occurring in the final four months of the year and all signs pointing to a further hemorrhaging of jobs in the months ahead. This means that the current recession, which officially began in December of 2007, will become the longest and most severe since the 1930s. Among the data in the Labor Department's Bureau of Labor Statistics (BLS) report suggesting the emergence of a full-blown depression is the fact that manufacturing employment fell below 13 million for the first time since 1942, and that the average workweek declined to 33.3 hours, the lowest figure since the Labor Department began tracking weekly work hours in 1964. "The message in the decline in hours worked to a record low is that more big job losses are coming," said Mark Zandi, chief economist of Moody's Economy.com. The depth of the crisis was further indicated by the upward revision of job loss figures for October and November. The November number was raised from 533,000 to 584,000 and that for October from 320,000 to 423,000. December's job losses marked the 12th consecutive month of declining payrolls. Economists expect that the job loss figure for December announced on Friday will be revised upward. One reason is that several state employment offices saw their computer systems crash in December as a result of the flood of people seeking jobless benefits, resulting in an undercount in the number of people laid off. According to the Labor Department's survey of households, unemployment increased by 632,000 in December to 11.1 million. For all of 2008, the unemployment rate rose by 2.3 percentage points and unemployment increased by 3.6 million. Another 3.4 million workers were forced into part-time work during the year. Payrolls were slashed in every sector of the economy in December except education, health care and government employment. Both the breadth and depth of the retrenchment evoked statements of shock and concern from economists. "Both the US economy and job market fell off a cliff in September," said Nariman Behravesh, chief economist for HIS Global Insight. He added, "These numbers, back to back, of more than half a million a month suggest that the US economy is in a free fall. It's scary..." He predicted the unemployment rate would rise to at least 9 percent by early 2010. "The speed and the breadth of the deterioration in the US economy since September are staggering," wrote Richard Moody, chief economist for Mission Residential. "Even with passage of a large fiscal stimulus package, labor market conditions will continue to deteriorate through 2009," Moody added. "This was the most rapid deterioration in the labor market over a six-month period since 1975," said Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut. "We're seeing a complete unraveling of the labor market and are on track for getting beyond 10 percent unemployment," said Lawrence Mishel, president of the Economic Policy Institute in Washington. An alternative—and far more accurate—measure of unemployment, which includes workers too discouraged to look for a job, rose to 13.5 percent from 12.6 percent in November, the highest figure in the 13 years that data has been kept. The number of people working part-time because of the slowing economy rose by 715,000 in December to 8.04 million. For all of 2008, the figure increased by 3.4 million. The number of long-term unemployed—jobless for 27 weeks or more—rose to 2.6 million in December and increased by 1.3 million for all of 2008, double the figure for the previous year. "Factoring in discouraged workers, unemployment is closer to 9.4 percent," said Peter Morici, an economist at the University of Maryland. "Add workers in part-time positions that cannot find full-time employment and the hidden unemployment rate is 14.5 percent." "This will prove to be a depression if we don't act quickly," Morici added. "The economy is not in a self-correcting mode. Recessions self-correct, but depressions do not." Only 25 percent of 274 industries surveyed by the Labor Department had a net payroll increase in December, the lowest percentage in the 18-year history of that data. Goods-producing industries cut 251,000 jobs, including 149,000 in manufacturing, the biggest monthly decline in manufacturing jobs since August of 2001. The factory workweek plunged below 40 hours to a record low 39.9 hours, and average overtime fell to just 3 hours. Services-producing industries cut 273,000 jobs, including 67,000 in retail trade and 113,000 in business services. Temporary help jobs fell by 81,000. Some 101,000 construction jobs were lost in December. In 2008 as a whole, nearly 800,000 manufacturing jobs were lost and 630,000 construction jobs disappeared. According to the Labor Department's employment report, average hourly earnings in December increased by 5 cents, or 0.3 percent, to $18.36 an hour. Hourly pay rose 3.7 percent for all of 2008, barely ahead of inflation. Workers' income is increasingly being driven down by reduced hours of work and reduced overtime, and more and more companies are announcing wage freezes or cuts. Last week the auto parts maker Visteon announced it was shifting more than 2,000 salaried workers to a four-day week and cutting their pay by 20 percent. In addition to the Labor Department employment report, the Commerce Department on Friday released a report on wholesale sales pointing to an accelerating slump. The report showed a record fall in wholesale sales in November of 7.1 percent. The massive destruction of jobs is fueling a downward spiral, in which unemployment depresses consumer spending, retail sales and business investment, which in turn lead to further layoffs. US retailers this week reported disastrous falls in holiday sales, leading the department store giant Macy's to announce the closure of 11 stores. There are forecasts of 73,000 retail store closures in the first months of 2009. The assault on jobs continues unabated. On Friday, Boeing announced it will eliminate 4,500 jobs at its commercial plane operations, about 7 percent of the unit total. The jobs will be cut mainly from Boeing's Seattle-area plants between April and June. Caterpillar announced it will put 814 workers on "indefinite layoff." LPL Financial, an independent broker-dealer said it will cut 10 percent of its workforce, or some 275 employees. The Meredith Corporation closed down one of its magazines, Country Home, and dismissed 7 percent of its employees on Thursday. The company said it was eliminating 250 jobs. The scale of the economic crisis highlighted by Friday's jobless report places in sharp relief the token character of the stimulus plan announced Thursday by President-elect Barack Obama. The incoming Democratic president is proposing another massive windfall for big business in the guise of a "recovery" plan to aid working class families being devastated by the crisis. But even on its own terms, Obama's plan will do little or nothing to stem the downward spiral toward depression. Obama claims his plan will "create or save" 3 million jobs over the next two years. But the crisis is presently destroying over 500,000 jobs a month. Even if his plan is adopted and implemented in full, the jobs it creates will be overwhelmed by the ongoing contraction, leading to a further rise in the unemployment rate to double-digit levels. Read More