When the sky opened and the bailout money started pouring down, no one really worried about the labor market. With that much money, the raging unemployment in the U.S. and globally was going to fix itself, right? Wrong!
Back in early 2009, when the Federal Reserve was designing its “stress test” for 19 large institutions (some of which begged for, and some of which being were fed, the federal stimulus), the economists predicted that the unemployment rate in 2010 would be about 8.8%. Oops.
So far, the unemployment this year has yo-yoed between 9.5% and 9.9%. The way things are going, by the end of it, we could see the unemployment rate solidify at 10% or even slightly higher.
To put things in perspective, for every percentage increase in the unemployment rate, the corresponding number of jobs lost is about 1.4 million. Obviously, American workers aredisillusioned and exhausted. Far too many have simply given up, which is killing the
unemployment rate and turning economists’ faces scarlet red for missing another forecast by about a mile or so.
There is something to be said about the way of thinking back then. The overwhelming thought was that the economy cannot be saved without saving the banks first. Ah, nothing like falling victim to an old economic cliché, believing that credit is the lifeline of capitalism, not real earnings. As a result, Washington’s emergency responders focused on ensuring thatthere was enough capital in the banks to keep them afloat until the financial system stabilized again. That was supposed to stimulate consumers and borrowers to start spending and remain economically alive. In a way, Washington poured over a trillion dollars into the economy, creating an insurance policy for the jobs that remained in the economy and giving a handout to those who lost them to encourage their spending spree with federal dough.
This strategy worked a little bit, but mostly it did not. The part that worked is that banks are mostly back on their feet and in an upward position. However, the bailouts and other economic stimuli did not create very many jobs. In the first half of 2010, the private sector
created only about 593,000 jobs. In contrast, when the recession began in December 2007, the economy shed eight million jobs. This snail-speed of the U.S. job creation rate is not likely to kick-start the labor market and, if it remains so low and so slow, it could result in
unemployment rates remaining super high for years.
What can be done to help the dire unemployment situation in the U.S.? For starters, now that big banks and lending companies have recuperated to some extent, courtesy of the U.S. taxpayers, it is time to return the favor and start lending more, particularly to small
businesses. During the Great Recession, small businesses have been relegated into lending limbo. To get them out of there is to give them bank loans, extend lines of credit, up credit card limits and lower costs of borrowing. Why? This is all that dry cleaners, independent
contractors, dentists, lawyers and many others need to start hiring again. As for the riskiness of lending, if they have survived this long, it means they are solid performers with a solid business plan. All they need to grow now is more new employees.
As for large companies, they have certainly trimmed their staff and have conserved quite a bit of cash in the past year or so. This places them in a good position to start hiring again. Nevertheless, they are not hiring, because many CEOs are still waiting for the double dip,
the viewpoint that I happen to share. But what the CEOs must realize — and this is where our opinions diverge — is that they got caught in a vicious loop. What the CEOs are failing to see is that they cannot wait for the economy to pick up the pace; they have to push it a little first
There is another factor impacting the job market in America, and that is the stability of federal, state and local governments. The impact of the recession on the public sector has been limited to an extent by the $250 billion in federal stimulus. Still, the effects of employment stabilizers are wearing off now and, unless various government levels start earning more revenues (through higher taxes, I am afraid), the public sector will soon start shedding jobs, too.