Americans Exhausting Jobless Benefits – US-FOREX.US
The unemployment rate masks the deterioration in the quality of the labor market, as more Americans are exhausting their unemployment benefits, potentially leading more defaults, foreclosures and bankruptcies.Americans have been wading in unemployment lines for the longest amount time since 1948, when the government started keeping track. The average length of unemployment in June was 24.5 weeks, while 29% of the unemployed were out of a job for 27 weeks or more. “You can’t say it’s comparable to the 1980s because once you’re out of a job it takes longer to find a new one,” said Christian Weller, Senior Fellow at the Center for American Progress and an Associate Professor of Public Policy at the University of Massachusetts-Boston. The threat of benefit exhaustion has become more acute for Americans than in the past, Weller argued, because over the past 20 to 25 years the United States has shifted responsibility of protecting families from emergencies on to the individuals. “This means that private savings and private wealth have taken on a larger role, but private wealth has been hurt badly during the crisis and the savings rate has fallen.” In fact, total wealth relative to after-tax income if at the same point it was in the early 1990s, before the boom in the housing and stock market, Weller said.So far, credit card companies have suffered along with consumers. American Express
earnings fell 48% for the second quarter. Capital One Financial
reported a loss for a second quarter and found itself earing the attention of put buyers and short-sellers in the days that followed. JPMorgan Chase
and Bank of America
also have consumer credit exposure, while Citigroup
tries to trim its credit card holdings.The National Employment Law Project, an advocacy group, said federally funded extended benefits, which last 20 to 53 weeks depending on the state’s unemployment rate, are covering 2.8 million workers. Yet, in the five months since the stimulus act was passed, 2.7 million more jobs have been lost, and leaving a record 4.4 million out of work for more than six months. The national unemployment rate reached 9.5% in June, and states generally offer 26 weeks in unemployment benefits. NELP also projects that 540,000 people will use up their unemployment benefits by the end of September. It estimates 1.5 million will have run out by year’s end.Unemployment is defined as those out of a job but seeking work, though individuals with only part-time employment looking for full-time positions are excluded. There haven’t been any meaningful moves in the participation levels in the United States, indicating people are staying in the game. That’s not to say they aren’t getting desperate. Challenger, Gray & Christmas, a consulting firm, found more unemployed Americans are willing to leave their homes and relocate to wherever positions are available.
Peter Morici, a professor at the Smith School of Business, University of Maryland School says that the economy isn’t expected to begin creating jobs until the fourth quarter of 2009, and the first quarter of 2010, yet even then it will probably only increase by 1%, the same as the growth rate of the adult population. “It’s basically going to be at the replacement rate,” Morici says, “and won’t be able to work down the unemployment level.”The country is facing a very tepid recovery, Morici predicts, and once the unemployment rate peaks it’s going to be difficult to bring down. He noted that the economy can still grow, as it did in Europe during the 1970s and 1980s, though with similar set of problems, such as an overvalued currency. As with Europe, Morici argued that the United States has also inhibited job creation with policies like taxing small businesses on health care, and so-called “cap and trade”. Morici said that if the government were to create added benefits, it should do it in a way that doesn’t disincentive people from getting work. The implications of benefit exhaustion reach beyond families and into the broader economy, Weller warned, as massive long-term unemployment fuels defaults, foreclosures and bankruptcies. Inadequate unemployment benefits also influence employed workers. Daniel Penrod, senior industry analyst for the California Credit Union League, said that those with jobs will cut spending out of concern that they’ll be more vulnerable if they end up on the unemployment rolls.”Making sure you have an adequate safety system in places means that a recession, even a sever one, doesn’t translate into the threat of another great depression,” Weller said. “In other words, when you increase unemployment insurance, you create insurance for the economy as well.”