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Economists are scrambling to make sense of the drastic rise in unemployment and what it means for our long term economy. Former Federal Reserve Chairman, Paul Volker is saying that the "natural rate" of unemployment may rise above previous levels. The "natural rate" of unemployment is the rate at which it neither creates acceleration or deceleration in inflation. The previous high for "natural employment" was 5.5%. Now, in current conditions it may rise to 6.5% of even 7%.
This creates several added problems. First, it will cause a general decline in federal revenues which, in turn, will drive up the federal deficit to over $1 trillion. Next, the government will need to decide if they leave the rate of "natural employment" alone of try and stimulate more job growth, thus increasing the chance for higher inflation.
So much for the theoretical possibilities. On a real level, the May 8 unemployment numbers may show a rate of 8.9%. Some economists believe that it may go as high as 10%.
On a personal level, extended periods of unemployment make it more difficult to obtain a new job because employers feel that you are not keeping up with technology. Discouraged workers are forced to accept a change in lifestyle. Of those out of work for more than 27 weeks, 51.5% are not in the same kind of job. Layoffs at companies employing 50 or more rose to 2,933, or 300,000 jobs lost.
Now to the auto industry where GM has cut 47,000 positions and plans to eliminate 2,600 of its 6,200 dealerships by 2010. These changes will result in about 137,000 jobs lost. Half of these jobs are gone for good. The effects on people losing long term employment are devastating. A typical 40 year old man will lose 20% of his lifetime savings.
The present recession is changing the face of employment in this country with loss of jobs that will not come back again.
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Reader Comments (Page 1 of 1)
5-05-2009 @ 6:24PM
WiseA%$ said...
Long term unemployment brings the truth no one on MSNBC ever talks about, (minus 4 brave souls) private sector is more important then the public sector and this unabated spending will shrink the private sector to the point there will be no funds available for the crooks in Washington to spend on their socialist/fascist agendas. Not like these idiots even understand the basic premise that government has no capital other then the supply it steals from the private sector.
Unemployment begets more state and federal aid, which creates a disincentive to remove ones self and go into the private sector, hence the current movement to remove welfare limits. The continued spending creates less and less incentive to go into the private sector and risk ones wealth (which by the way would be stunted via higher income taxes and cost of living) by creating a small business. I.e. the number of jobs available will be greatly affected because of the government’s take of the private sectors wealth (which aside from legitimate functions of government the feds have zero right to ones wealth, regardless of it being from labor or interest) will be so large it will choke the vast majority of drive that exists within the country currently.
The only businesses that will prosper will be large businesses that have a friendly relationship with the government. Small business will be a fraction of a fraction in comparison what it is today and no amount of government subsidy can correct that. Job creation and wealth creation will become stagnant, the number of innovations from the private sector will be reduced to a trickle and America will become a mirror image of the defunct country it was during the 60's and 70's.
The current idea is that in order to pump up the economy the government must spend massive amount of capital so to shock the system. The problem is that for that concept to work the spending body cannot be spending on a credit line, cannot punish any business with higher cost which they pass down to the customers and a total removal from government funding to private businesses (minus military) must happen so to allow defunct companies to fail while their competitors become stronger and reinvest into the country, creating jobs, opportunity and wealth.
Sadly we're not going down that road, instead we're maxing out our credit card pumping up sectors and industry giants which need to be allowed to fail. Once the funding stops, which it will unless we all want to see a 70-90% increase on taxes across the board, the market cannot make up the capital on it's own and the entire economy will collapse taking down every sector, thus create a much more disastrous situation then anything we've faced before.