It's still about jobs. What will determine the
core success of President Obama's second term is progress - or the
lack thereof - in reducing long-term unemployment. We know this
from exit polls, which ranked the economy as the top issue (selected
by about 60 percent of voters) and, more important, from common
sense.
To be sure, the labor market has improved from its low point. At
7.9 percent, the unemployment rate is down from its peak of 10
percent in October 2009. The ratio of job seekers to job openings
has declined from 6.7-to-1 (nearly seven unemployed for every job)
in July 2009 to 3.4-to-1 in September, reports Heidi Shierholz of
the Economic Policy Institute, a liberal think tank. Still, that's
much higher than the 1.5-to-1 or 2-to-1 that prevails in a stronger
labor market.
What truly defines the bleak job market is long-term
unemployment, which is near post-World War II records. Beginning in
December 2009 - that is, for 35 consecutive months - the share
of the unemployed who have been jobless for more than six months has
exceeded 40 percent. The previous postwar high occurred in 1983,
just as the economy was emerging from the harsh 1980-82 slump, when
the long-term unemployed exceeded 25 percent for a single month.
Typically, the long-term jobless represent from 10 percent to 20
percent of the total.
The social consequences have been devastating, although -
because this is so new -- studies are few. As unemployment
persists, the jobless deplete their savings and lose confidence.
Marriages become strained; paying everyday bills and the mortgage
grows harder or impossible. Contacts with the labor market weaken;
potential employers grow more suspicious of long stretches without
work.
Even those who ultimately find new jobs often have to take huge
pay cuts. Consider a new study by economists Bruce Fallick of the
Federal Reserve, John Haltiwanger of the University of the Maryland
and Erika McEntarfer of the Census Bureau. They examined the
experience of workers who lost jobs at firms that were shrinking in
1995, 1999 and 2001. Workers who didn't get another job for a year
typically suffered an 18 percent pay loss. The experience now may be
worse because the job market is weaker.
There's a second reason why a strengthened labor market is
pivotal for Obama: the young. Many recent high-school and college
graduates cannot find full-time jobs or jobs that fit their skills.
Careers, marriages and births are being delayed. Until the labor
market strengthens, these workers are particularly vulnerable,
because - as the old cliche goes - they're the last hired and
the first fired.
Obama's problem is that, because job creation mainly occurs in
the private sector, the president's influence is mostly indirect.
One pathway is to try to spur hiring by juicing up the economy
through deficit spending. But recent deficits ($5.1 trillion from
2009 to 2012) have created a political backlash, and some economists
are skeptical about deficits' effectiveness. This option seems off-
limits.
A more general approach is to bolster confidence among
businesses. The trouble is that Obama's relations with the business
community have been rocky. An obvious flashpoint: the president's
proposal to raise the top personal income tax rate from 35 percent
to 39.6 percent for couples earning more than $250,000. Small-
business organizations have objected, arguing that many small
businesses pay taxes at the personal rates and that higher rates
would discourage job creation.
The first test of the post-election political climate will come
when the president and congressional leaders try to avert the
"fiscal cliff" - the roughly $500 billion in tax increases and
spending cuts scheduled for 2013. The Congressional Budget Office
and others have said that if all the changes took effect, the
economy would probably plunge back into recession. For jobs, that
would be a disaster.
