Making a permanent underclass

Dean Baker on the national disaster of long-term unemployment.

Paul Krugman talks about the human tragedy behind the economic policy failures of the Obama administration, which has prioritized deficit reduction over putting people back to work:

It goes without saying that the explosion of long-term unemployment is a tragedy for the unemployed themselves. But it may also be a broader economic disaster.

The key question is whether workers who have been unemployed for a long time eventually come to be seen as unemployable, tainted goods that nobody will buy. This could happen because their work skills atrophy, but a more likely reason is that potential employers assume that something must be wrong with people who can’t find a job, even if the real reason is simply the terrible economy. And there is, unfortunately, growing evidence that the tainting of the long-term unemployed is happening as we speak.

One piece of evidence comes from the relationship between job openings and unemployment. Normally these two numbers move inversely: the more job openings, the fewer Americans out of work. And this traditional relationship remains true if we look at short-term unemployment. But as William Dickens and Rand Ghayad of Northeastern University recently showed, the relationship has broken down for the long-term unemployed: a rising number of job openings doesn’t seem to do much to reduce their numbers. It’s as if employers don’t even bother looking at anyone who has been out of work for a long time.

To test this hypothesis, Mr. Ghayad then did an experiment, sending out résumés describing the qualifications and employment history of 4,800 fictitious workers. Who got called back? The answer was that workers who reported having been unemployed for six months or more got very few callbacks, even when all their other qualifications were better than those of workers who did attract employer interest.

So we are indeed creating a permanent class of jobless Americans.

And let’s be clear: this is a policy decision. The main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy.

It’s hard to overstate how self-destructive this policy is. Indeed, the shadow of long-term unemployment means that austerity policies are counterproductive even in purely fiscal terms. Workers, after all, are taxpayers too; if our debt obsession exiles millions of Americans from productive employment, it will cut into future revenues and raise future deficits.

Our exaggerated fear of debt is, in short, creating a slow-motion catastrophe. It’s ruining many lives, and at the same time making us poorer and weaker in every way. And the longer we persist in this folly, the greater the damage will be.

(h/t DUI Lawyer David Benowitz.)

4 thoughts on “Making a permanent underclass

  1. Two things are clear in this economy. The first is that there are a lot more people wanting jobs than there are jobs to be had. Thank you robot class. Secondly, if you want to get a job you must demand to work for the minimum wage. Older and more experienced job seekers expect to be paid a higher wage (the long-term unemployed) and are being passed over for younger and less experienced workers. “The trouble with the profit system has always been that it was highly unprofitable to most people.” E.B.White. Thanks 1%.

  2. To the people on top, high unemployment is good because it holds down wages and therefore holds down inflation. Inflation is the enemy of unearned income and accumulated wealth because it reduced the value of their money.

    The two goals of the Federal Reserve are to hold down inflation and maintain employment, but it cannot do both. It will chose to serve the interest of capital every time.

  3. Then couple this reality with the fiction that we have longer productive lives and defer Social Security and Medicare eligibility and sooner or later we get the class based descending life expectancy that is playing out in Russia.

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