“The New Abnormal” by John Edward

John Edward, a resident of Chelmsford who earned his master’s degree at UMass Lowell and who teaches economics at Bentley University and UMass Lowell, contributes the following column.

In May 2007, the unemployment rate was 4.4 percent. I feel safe in predicting it will be a long time before we see the rate that low again. It may not just be years, but decades.

The economy is showing signs of a “normal” recovery. Output has grown for six quarters in a row. After peaking over 10 percent, the official unemployment rate has fallen from 9.8 to 8.8 percent in the last four months. As expected, and for reasons that are well understood, improvements in the job market lag behind economic growth.

What is not well understood is that if unemployment is high for an extended period, the damage is enduring. If you do not take prescribed medication as directed, your condition may worsen beyond the point where a full recovery is possible.

The healthiest of economies will have unemployment. Some people will be between jobs. When people take the time to find a good match, it is good for the economy.

Seasonal employment will always exist. In January, the unemployment rate in Provincetown was 39 percent.

In a dynamic economy, entrepreneurs create new jobs or even entire industries. Other jobs, or entire professions, disappear. I checked – there are not many job listings for switchboard operators or typesetters these days.

Jobs disappear even faster when the economy is not doing well. A Northeastern University Center for Labor Markets study concluded that over 300,000 Massachusetts jobs were permanently lost during the great recession.

Full employment is the term for the rate of unemployment we should expect when the economy is healthy. Before the great recession, the estimate for full employment was an unemployment rate of 5.0 percent.

President Obama has expressed fear that the economy may be entering a “new normal where unemployment rates stay high.” A recent Federal Reserve study supports his concern. They estimate that the full employment rate is now 6.7 percent.

The difference between 5.0 and 6.7 is 2.6 million people out of work! That is a huge drag on our economy and our society.

Calling it a “new normal” implies we should accept these conditions. It illustrates how abnormal our economy has become and how abnormal conditions are in Washington.

There is nothing normal about six million people being out of work for more than six months. Another eight million are working part time because they cannot find full-time jobs. The official statistics do not even count two and a half million prospective workers, including almost a million who have given up looking.

When someone has been out of work for an extended period, their skills erode. The jobs they are equipped to perform may not even exist anymore. Without retraining, desperate job seekers may find they are not prepared to work in a 21st century economy.

Software engineers become less hirable if they do not know the latest programming languages. People who worked in advertising have difficulty marketing themselves if they do not know how to reach people via social networking.

The Career Center in Lowell is always busy, but they had a spike in customers last year. They have observed an increase in the duration of unemployment, with more people than they have ever seen out of work for more than a year.

Some businesses will not even consider the long-term unemployed. The Career Center has to work hard to help job seekers overcome the stigma of being out of work for an extended time.

There is a proposal in Congress to eliminate all funding for the Workforce Investment Act. The money supports not just the critical services provided by career centers, but many employment programs overseen by the Greater Lowell Workforce Investment Board.

The Career Center and Investment Board still have a lot of work to do. Although it has come down, the official unemployment rate in Lowell is very high at 10.6 percent.

The latest establishment survey from the Bureau of Labor Statistics reported a net gain of 216,000 jobs in March. It sounds like a lot, but we have to create at least 300,000 jobs a month to make a healthy dent in unemployment. Even at that rate, it will take years to get to just 6.7 percent unemployment.

Washington should take action now. The longer high unemployment persists the worse it will be for our economy in the long term.

The most important step is continuing to offer extended unemployment benefits. Some worry that benefits increase unemployment. Studies indicate the negative effect is minimal and is overwhelmed by the stimulus effect. A recent Department of Labor study found that unemployment insurance created a net gain of 1.8 million jobs.

President Obama continues to emphasize the importance of education and job training. He should remember that when negotiating budget cuts. The President should veto any legislation that reduces investments in our workforce.

Even if we accept full employment is 6.7 percent, we still have a big job gap to close. Fortunately, we seem to have avoided a government shutdown. We need to address our national debt, but we also need to avoid shutting down the stimulus program. Many economists have predicted the result could be another recession.

We need to confront the root cause of all this unemployment. Under-regulated financial markets caused the great recession. The financial reform legislation was inadequate. Now members of Congress are trying to water it down or repeal it.

In autumn 1973, the unemployment rate was 4.6 percent. Soon we were in the midst of an energy crisis, stagflation, and then a severe recession in the early 1980s. The unemployment rate peaked at 10.8 percent in 1982. It was not until late 1997 that we saw 4.6 again.

We should not wait twenty-five years to get people back to work. There is nothing normal about it.

2 Responses to “The New Abnormal” by John Edward

  1. PaulM says:

    In the Lowell revitalization narrative, the horror show figure for official unemployment in the mid-1970s that is cited as evidence that the city was in severe distress is roughly 12 percent. We are not far from the figure today, officially. No doubt higher unofficially. The figure for Lawrence today is much higher than 12. We must remember that these figures translate into lives, especially children’s lives.

  2. Bob Forrant says:

    If you add to the official unemployment figure, the number of people who are discouraged, stop looking for work and are thus no longer counted in the official statistics, and the folks who are working part time and want a full time job, the real rate of joblessness in Lowell is pushing 20 percent and in lawrence nearly 30 percent! Public sector worker cutbacks will soon add to these figures as timid Dems. and dedicated cutting Reps. slash the federal and state budgets still further. My prediction is, if the cuts continue, a return to serious recession by summer and a very, very grim election season in 2012 with tops Dems. tripping all over themselves to look like deficit hawks while the suffering continues.

    Must add I was amazed the Boston Globe devotes a large piece of today’s front page on a vanity piece for Larry Summers and his return to the Harvard campus. Last I checked the historical record he was a significant architect during the Bill Clinton years of the financial deregulations largely responsible for the last few years of the horror show economy. Way to go Globe! And by the way, what about those Harvard-connected profs who were on Libya’s payroll to give that regime a make over – why not throw them a bouquet of spring flowers too?