Eight Percent Unemployment Through 2011

The latest Dow Jones survey of economists, which polled 48 experts, showed that, showed on average they believe that unemployment will peak at 10.2% this February and then remain above 6% until sometime in 2013. The publication of these surveys only contains averages and that is certain to mean that a large number of qualified experts believe that unemployment will  move well above 10% next year and stay above 8% though 2012.

The effects and devastation of having that many people out of work for that long are incalculable.  Congress is looking at a program to extend unemployment benefits by 20 weeks in that states hardest hit by joblessness and 14 weeks in the rest of the states. It is an odd approach since a person out of work is out of work no matter where they liv.
President Obama is under considerable pressure to solve the unemployment trouble. It has not been addressed directly by his administration because the $787 billion stimulus package is aimed at funding industries which will hopefully add employees. This indirect approach may not be working, at least not so far.

The argument against a jobless recovery becomes stronger as each month passes and economists push further out their projections for when the unemployment rate will get back to the 5% or 6% where it was before the recession began to bit. Five percent joblessness is considered “full employment” because some people are always bound to have been fired, laid-off, or simply looking for a better job.

A jobless recovery’s lack of success feeds upon itself. GDP may go up because of productivity improvements, business spending, and export activity. The engine of the recovery, if it is going to be long-term, comes back to consumer spending and people who are out of work do not spend. Retailers and companies who sell their products through retailers begin to see drop-offs in sales. That often causes even more lay-offs.

Some members of Congress have suggested a direct tax benefit to companies that hire new workers. It will require some action that radical to get businesses that are afraid of adding costs to begin to add them by hiring. There is no incentive other than direct financial aid otherwise.

The unemployment puzzle is not even close to being solved, but if it does not have an effective solution by the end of the year, the idea that the economy will move back to a modest expansion in 2010 is a fantasy.
Douglas A. McIntyre