SALON

Tuesday, Oct 16, 2012 3:35 PM UTC

Unemployment doesn’t just hurt the unemployed

People often forget that an excess labor supply emboldens employers to pay lower wages

By , On the Economy

Topics: Recession, 2012 Elections, On the Economy, Jared Bernstein, Unemployment, Barack Obama, Mitt Romney, IMF, ,

Unemployment doesn't just hurt the unemployedJob seekers wait in line during a job fair in Portland, Ore., on April 24. (Credit: AP/Rick Bowmer)
This originally appeared on Jared Bernstein's blog, On the Economy.  

Every once and a while I hear someone say, “wait a sec, if the unemployment rate is 7.8% then 92.2% of labor force is working…that doesn’t sound so bad at all.”

That’s wrong simply in the sense that 7.8% is still an elevated unemployment rate (suppose the rate were 15%–would you feel better if someone pointed out the 85% are still at work? 100%-unemp is just not an elucidating metric).

But it’s more wrong in the sense that high unemployment has negative spillovers for most of those still at work.  In a labor market like ours, with low unionization rates, bargaining clout for many in the workforce is very much a function of the unemployment rate.  Excess labor supply over labor demand typically puts downward pressure on both nominal and real wages.

The figure below plots real hourly wages for non-supervisory workers—blue collar workers in manufacturing and non-managers in services (about 80% of the workforce).  It also plots yearly nominal growth rates of that same hourly wage (before accounting for inflation).

As you can see, the latter series just keeps trending down, and that’s what I mean by a weak labor market hurting workers and their paychecks.  Factoring in inflation shows some interesting nuances—even as nominal wages were slowing back in late 2008, declining price levels boosted the buying power of the hourly wage.   But more recently, the combination of price growth and high-unemployment-induced slower nominal wage growth is lowering hourly pay.

Silly season caveat: I can easily see the RNC citing this trend of evidence of the President’s failure, yada-yada…but that’s malarkey, as the VP would put it.  The American Jobs Act, proposed by the President in Sept 2011 and completely ignored by Congressional conservatives, would be chipping away at the high jobless rate as we speak.

The Romney/Ryan rap on this makes no sense.  Their side erects road blocks to prevent the fire trucks from getting to the fire and then complains about the heat.

And before you want to get all “stimulus doesn’t work” on me, check out the excellent box 1.1 on page 41 from the IMF World Report.  A bit wonky, but they’re basically finding that austerity isn’t just counterproductive re growth and jobs.  It’s a lot more so than they thought.

This is just a particularly lousy time to unlearn the fact that spraying water on burning buildings really does quell the flames.

 

Continue Reading Close

Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden. Follow his work via Twitter at @econjared and @centeronbudget. More Jared Bernstein.

Next Article

Related Stories

Featured Slide Shows

What To Read Awards: Top 10 Books of 2012 slide show

close X
  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 10
  • 10. "The Guardians" by Sarah Manguso: "Though Sarah Manguso’s 'The Guardians' is specifically about losing a dear friend to suicide, she pries open her intelligent heart to describe our strange, sad modern lives. I think about the small resonating moments of Manguso’s narrative every day." -- M. Rebekah Otto, The Rumpus

  • 9. "Beautiful Ruins" by Jess Walter: "'Beautiful Ruins' leads my list because it's set on the coast of Italy in 1962 and Richard Burton makes an entirely convincing cameo appearance. What more could you want?" -- Maureen Corrigan, NPR's "Fresh Air"

  • 8. "Arcadia" by Lauren Groff: "'Arcadia' captures our painful nostalgia for an idyllic past we never really had." -- Ron Charles, Washington Post

  • 7. "Gone Girl" by Gillian Flynn: "When a young wife disappears on the morning of her fifth wedding anniversary, her husband becomes the automatic suspect in this compulsively readable thriller, which is as rich with sardonic humor and social satire as it is unexpected plot twists." -- Marjorie Kehe, Christian Science Monitor

  • 6. "How Should a Person Be" by Sheila Heti: "There was a reason this book was so talked about, and it’s because Heti has tapped into something great." -- Jason Diamond, Vol. 1 Brooklyn

  • 4. TIE "NW" by Zadie Smith and "Far From the Tree" by Andrew Solomon: "Zadie Smith’s 'NW' is going to enter the canon for the sheer audacity of the book’s project." -- Roxane Gay, New York Times "'Far From the Tree' by Andrew Solomon is, to my mind, a life-changing book, one that's capable of overturning long-standing ideas of identity, family and love." -- Laura Miller, Salon

  • 3. "Billy Lynn's Long Halftime Walk" by Ben Fountain: "'Billy Lynn's Long Halftime Walk' says a lot about where we are today," says Marjorie Kehe of the Christian Science Monitor. "Pretty much the whole point of that novel," adds Time's Lev Grossman.

  • 2. "Bring Up the Bodies" by Hilary Mantel: "Even more accomplished than the preceding novel in this sequence, 'Wolf Hall,' Mantel's new installment in the fictionalized life of Thomas Cromwell -- master secretary and chief fixer to Henry VIII -- is a high-wire act, a feat of novelistic derring-do." -- Laura Miller, Salon

  • 1. "Behind the Beautiful Forevers" by Katherine Boo: "Like the most remarkable literary nonfiction, it reads with the bite of a novel and opens up a corner of the world that most of us know absolutely nothing about. It stuck with me all year." -- Eric Banks, president of the National Book Critics Circle

  • Recent Slide Shows

  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 10

Related Videos

More Related Stories

Comments

 8 Comments

Comment Preview

Your name will appear as username ( profile | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>

follow salon

Most Read

From Around the Web

Recommendations