Pinched (3 page)

S
INCE THE CRASH
, periods of optimism have come and gone like the seasons—2009 gave us the “green shoots” of an economic spring, and 2010 a “recovery summer.” And of course the economy has improved overall. Yet with each passing year, government and private
forecasts have continued to push a full jobs recovery further and further into the future. In January 2009,
a White House study predicted that, assuming the stimulus legislation passed, the unemployment rate would be about 7 percent by the end of 2010.
As the end of 2010 approached, the Fed estimated that the unemployment rate would still be a full point higher than that when we ring in 2013.
If the labor recovery follows the same basic path as it did in the previous two recessions, in 1991 and 2001, unemployment will still be nearly 8 percent in 2014. Even if jobs grow as fast and consistently as they did in the mid-1990s, it will not fall below 6 percent until 2016.

No one knows how fast jobs will come back—or where the unemployment rate will ultimately settle. The only theoretical limit on job growth is labor supply, and a lot more labor is sitting idle today than usual. Major technological breakthroughs—notoriously difficult to predict—could add speed and durability to the recovery. Smart government action or a rapid acceleration of global growth could do the same. Yet by many measures, the rate of innovation in the United States has been low for more than a decade—with the housing bubble, we simply didn’t notice. And the trend following recent downturns has been toward slower recoveries, not faster ones.
Jobs came back more slowly after the 1990 recession than they had in the previous recession in 1981, and more slowly after the recession of 2001 than they had in 1991. Indeed,
American workers never fully recovered from the 2001 recession: the share of the population with a job never again reached its previous peak before this downturn began.

As of early 2011,
the economy sits in a hole more than 11 million jobs deep—that’s the number required to get back to 5 percent unemployment, the rate we had before the recession started, and one that’s been more or less typical for a generation. And because the population is growing and new people are continually coming onto the job market, we need to produce roughly 1.5 million new jobs a year—about 125,000 a month—just to keep from sinking deeper.
Even as demand grows, the process of matching some workers with new jobs is likely to be slow and arduous. Over the past thirty years, temporary layoffs have gradually given way to the permanent elimination of jobs, the result of workforce restructuring.
More than half of all the jobs lost in the Great Recession were lost forever. And while businesses are slowly creating new jobs as the economy grows, many have different skill requirements than the old ones. “
In a sense,” says Gary Burtless, a labor economist at the Brookings Institution, “every time someone’s laid off now, they need to start all over. They don’t even know what industry they’ll be in next.”

I
N 2010,
THE
phone maker Sony Ericsson announced that it was looking to hire 180 new workers in the vicinity of Atlanta, Georgia. But the good news was tempered. An ad for one of the jobs, placed on the recruiting website the People Place, noted the following restriction, in all caps: “NO UNEMPLOYED CANDIDATES WILL BE CONSIDERED AT ALL.”

Ads like this one have been popping up more frequently over the past year or so; CNN, the Huffington Post, and other news outlets have highlighted many examples, involving a wide range of jobs—tax managers, quality engineers, marketing professionals, grocery-store managers, restaurant staff. Sometimes the ads disappear once the media calls attention to them (a spokesperson for Sony Ericsson said its ad was a mistake). But new ones continue to appear. “I think it is more prevalent than it used to be,” said Rich Thomson, a vice president at Adecco, the world’s largest staffing firm, midway through 2010; several companies had recently told him they were restricting their candidate pools in a similar fashion.

To a certain extent, these restrictions are an unjust by-product of the desperation of many unemployed Americans, who have inundated companies with applications, sometimes indiscriminately. And of course, they also show the extent to which it is still a buyer’s market, in which employers can afford to be extraordinarily
selective. But these restrictions may portend something more enduring, as well. Temporary unemployment can become permanent after a time; companies sometimes ignore people who have been out of a job for a year or two, and the economy—somewhat shrunken—just moves on without them.

The economic term for this phenomenon is
hysteresis
, and it can be one of the worst consequences of a very long recession. When people are idle for long periods, their skills erode and their behavior may change, making some of them unqualified even for work they once did well. Their social networks shrink, eliminating word-of-mouth recommendations. And employers, perhaps suspecting personal or professional dysfunction even where it is absent, may begin to overlook them en masse, instead seeking to outbid one another for current or recently unemployed workers once demand returns. That can ultimately lead to higher inflation, until the central bank takes steps to depress demand again. The economy is left with a higher “natural” rate of unemployment, a smaller working population, and lower output potential for years to come.

The blight of high unemployment that afflicted much of Europe in the 1980s and ’90s is a case in point, and an important cautionary tale. The persistence of high unemployment resulted from several factors, including overly rigid labor markets in some countries and welfare programs that dulled the incentive to find a job in many others. But analysis by the Johns Hopkins economist Lawrence Ball reveals that much of it was the result of hysteresis caused by a long period of disinflation and weak demand in the early and mid-1980s. In some countries, the natural rate of unemployment rose by five to nine percentage points.

The scars from this period will be deepest for the unemployed, but they will be felt by others as well. Communities marked by high, persistent unemployment devolve over time; social institutions wither, families disintegrate, and social problems multiply. Many American inner cities still bear scars from the sudden loss of manufacturing, and the attendant rise in male unemployment, in the
1970s. Parts of Europe now struggle with a burgeoning underclass. When geographically concentrated, idleness and all its attendant problems are easily passed from one generation to the next.

American politics have grown meaner as economic anxiety has lingered. Anti-immigrant sentiment has risen, and support for the poor has fallen. By many measures, trust—which to a large degree separates successful societies from unsuccessful ones—has diminished.
The number of active militias in the United States increased from 43 to 330 between 2007 and 2010. And while frustrations will ebb when the economy improves enough, ideas and attitudes carry their own momentum. Once they become sufficiently commonplace, they are never quickly vanquished.

One reason the problems ushered in by the Great Recession are so urgent is that once too much time passes, they no longer
can
be solved. Once the character of a generation is fully formed, it cannot be unformed; once reactionary sentiments come out of the bottle, they are hard to put back in. And once large numbers of people cross the Rubicon from temporary unemployment to chronic joblessness, they, their families, and their communities can be lost for good. Finding our way to a full recovery from this period, and soon, is not just a matter of alleviating temporary discomfort. By degrees, economic weakness is slowly narrowing the life opportunities of many millions of people, and leaving our national future pinched.

Economies do eventually mend, of course. But recoveries from deep downturns are commonly jagged, with several false starts before growth takes firm hold. One needn’t look too far to find positive omens in the economy today.
Business profits approached record levels in 2010, and it already seems to be morning in parts of America, particularly those parts in which the most influential Americans tend to reside. The million-dollar question is how quickly the dawn will come for the rest of the country—and how bright that dawn will be.

F
OR MORE THAN TWO YEARS NOW, THE BLOGGER
A
NDREW
S
ULLIVAN
has been regularly posting first-person accounts of the downturn, e-mailed to him by his readers, under the rubric “The View from Your Recession.” Sullivan has a wide and varied readership, spanning generations and classes, and the posts collectively form a sort of oral history of American life since the crash. Many of the stories are heartbreaking—of lost jobs and lost houses; of failed family businesses and withered sex lives; of paychecks parsed and retirement savings drawn down to support siblings or parents or grown children who can no longer support themselves; of depression and drinking and lives gone offtrack.

But some of the entries underscore the fact that the recession, of course, hasn’t hit everyone. “We are in our late 20s,” wrote one woman from New England in May 2009. “We bought a house last summer, adopted a dog, and are enjoying our little life in our little town.” She and her husband had gotten their graduate degrees some time ago, and she was working in university administration. “Everywhere I look,” she wrote, “my life is unaffected by the recession. Truthfully, if I did not watch the news or read your blog every day, I would not believe that there is a serious economic crisis going on.”

Another writer noted that while he felt for those who were suffering, his high-paying career as a software engineer was going like gangbusters; the main impact the recession had had on him was to reduce the price of fine wine, which he was buying in bulk. Yet another,
formerly in finance, had lost his young business (in wine distribution, as it happens) early in the recession, but a friend who had faith in him had invested $2 million in a new start-up he was running, which was growing quickly. (
Among others writing in to say that business was booming, with varying degrees of chagrin, were the partner of a real-estate agent who’d had the vision to quickly specialize in foreclosed properties, a lawyer whose firm handled personal bankruptcies, and a freelance writer specializing in résumé-writing assistance.)

One unmistakable pattern is the upbeat tone of expatriate Americans writing in from China or India or Latin America to note how well they and nearly everyone around them seemed to be doing, making the stories they were hearing from the United States seem almost surreal. “I do feel for everyone back in the USA that [is] suffering now,” wrote one reader from São Paulo, Brazil, where his U.S.-based company had sent him to open a low-cost office. “I do not know what to make of our case. It is what it is. I do not take it for granted. But 40 years from now, when we are sitting around with friends who talk about how bad things were back in 2008 and 2009, we won’t have much to add to the conversation.”

Even in the Great Depression, some people prospered. In the texture of the comments from Sullivan’s readers—and in the stories I’ve heard in my reporting around the country—it’s hard to miss just how unevenly this recession has affected different people in different places.
In March 2011, the unemployment rate was 12.0 percent for people with only a high-school diploma, 4.5 percent for college grads, and 2.0 percent for those with a professional degree. In the Washington, DC, and San Jose (Silicon Valley) metro areas,
job postings in February 2011 were almost as numerous as job candidates. In Miami and Detroit, by contrast, for every job opening, more than six people were unemployed. From 2009 to 2010,
wages were essentially flat nationwide—but they grew by 11.9 percent in Manhattan and 8.7 percent in Silicon Valley.

Housing crashed hardest in the exurbs and in more-affordable,
previously fast-growing areas like Phoenix, Las Vegas, and much of Florida—all meccas for aspiring middle-class families with limited savings and moderate education. The upper-middle class, most densely clustered in the closer suburbs of expensive but resilient cities like San Francisco, Seattle, Boston, and Chicago, has lost little in comparison. And indeed, because the stock market has rebounded while housing values have not, the middle class as a whole has seen more of its wealth erased than the rich, who hold more-diverse portfolios.
A 2010 Pew Research Center study showed that the typical middle-class family had lost 23 percent of its wealth since the recession began; that figure was just 12 percent for the upper class.

The recession has even proved selective in its treatment of the sexes. Most downturns are harder on men than on women; maledominated occupations like construction and manufacturing tend to be highly cyclical, unlike work in health care or education or other services, which is disproportionately performed by women. Three out of every four pink slips delivered during the recession were delivered to men. Among those who’ve kept their jobs,
men have reported more pay cuts than women as well.

Why has this recession been so selective in the pain it has levied? And why are some people and places now coming back quickly, while most are not? In fact, all of these developments—the divergent fortunes of New York and Phoenix, of the rich and the rest, even of women and men—are related. Understanding them is essential to understanding the nature and meaning of the period through which we are now living.

O
NE OF THE
most salient features of severe downturns is that they tend to accelerate deep economic shifts that were already under way. Declining industries and companies fail, spurring workers and capital toward rising sectors; declining cities and regions shrink faster, leaving blight; workers whose roles have been partly usurped by technology are pushed out en masse and never asked to return.
Some economists have argued that in one sense, periods like these do nations a service by clearing the way for new innovation, more-efficient production, and faster growth. Whether or not that’s true, they typically allow us to see, with rare and brutal clarity, exactly where society is heading—and what sorts of people and places it is leaving behind.