Most US workers have not recovered

Sometime during the month of May total U.S. employment reached its pre-recession level -- an important milestone in the economy’s recovery from the financial crisis and the Great Recession.  Although cause for celebration, a closer look finds that most American workers and their families have still not recovered from the losses they suffered as a consequence of the financial crisis and subsequent recession.  In fact, many of them may never fully recover.

It took 6½ years to recoup the 8.7 million net decline in employment, twice as long as it did following the previous 2 recessions.  Businesses, on the other hand, recovered rather quickly from the Great Recession -- corporate profits surpassed its pre-recession level just 2 years after the onset of the recession and real (inflation-adjusted) GDP recovered to its pre-recession level approximately 3 years after the onset of the recession.

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The U.S. labor market has changed dramatically since the outbreak of the financial crisis in 2008.  Poor economic conditions prevented most of the 14 million Americans who became old enough to work over the last 6½ years from entering the workforce and hundreds of thousands of workers may have permanently “dropped out” of the labor market, frustrated by months of searching for a new job.  As a consequence, 25 years of gains in the percentage of the working age population with a job have been erased.

The recession exacerbated the intensity and pace of structural changes in employment that have been taking place over the last 30 years.  Of the approximately 500 industries for which there are detailed data, more than two-thirds -- primarily in construction, manufacturing, information and financial activities -- experienced net declines in employment, while the remaining third -- primarily in professional and business services, and education and health services -- experienced net increases in employment.  But probably the most troubling finding is that industries that experienced net declines in employment tended to have higher relative earnings and industries that experienced net increases in employment tended to have lower relative earnings.

In other words, the U.S. economy continues to replace high wage jobs with low wage jobs.

Despite the high burden being placed on American workers, the nation’s workforce development programs are inadequate, uncoordinated and difficult to navigate.  Unemployment Insurance no longer automatically moderates large drops in income and personal consumption during economic slowdowns and the triggers designed to provide desperately needed assistance to the long-term unemployed are broken.  The Workforce Investment Act (WIA) -- the nation’s primary workforce development program -- has been limping along without Congressional authorization since 2008.  And Congress allowed key provisions of Trade Adjustment Assistance (TAA) – the program designed to assist workers, firms and communities facing dislocations due to increased import competition and offshore shifts in production -- to expire at exactly the same time the Obama Administration is pursuing new trade negotiations with Asia and Europe, which will contribute to additional dislocations.

Average federal spending on workforce development is approximately $43 per person, less than half of what it was 30 years ago.  Other industrialized countries spend, on average, almost 4 times more than the United States on training and job search assistance.

Technological change, global competition and the aftershocks from the most serious economic downturn since the Great Depression are putting American workers under incredible pressure.  The nation’s workforce development programs need to be reformed so that all workers have access to adequate and effective assistance in a timely and predicable fashion. 

Congress should immediately act on the recent bipartisan proposal to reauthorize WIA.  In addition Congress should establish a national bipartisan commission, with representatives from the business, labor, academia and state and local government, to develop a strategy for reforming and strengthening the nation’s unemployment assistance, training and job search assistance programs.  Helping workers acquire the skills they need to find high wage jobs is the more effective way to stem, if not begin reversing the recent deterioration in the distribution of income.

Rosen established and serves as executive director of the Trade Adjustment Assistance Coalition, which advocates on behalf of workers and communities experiencing dislocations due to changes in international trade and investment.  He also served as staff director of the Congressional Joint Economic Committee and executive director of the Competitiveness Policy Council and was associated with the Peterson Institute for International Economics for more than 30 years.  Howard_F_Rosen@yahoo.com