Ingrid Schroeder, Project Director, Pew Fiscal Analysis Initiative;
Erin Currier, Project Manager, Economic Mobility Project

April 2, 2012—The Pew Fiscal Analysis Initiative examines the most pressing economic and fiscal concerns that face our nation today. The initiative provides accessible analysis to inform the debate on tough issues like unemployment and the national debt. Pew’s Economic Mobility Project studies the health and status of the American Dream. Aiming to ensure that the American Dream is kept alive for generations to come, the project develops research to build collective, nonpartisan agreement on the next steps for an improved level of economic opportunity in the United States. Here, experts from both projects offer their combined insight on the landscape of Americans’ circumstances today as compared to other economic downturns in the nation’s recent history.

Q: As the Bureau of Labor Statistics reports that the unemployment rate has been falling over the past six months, does your work provide hope for those Americans who are struggling today?

A: (Ingrid) The long-term unemployment rate, the percentage of the unemployed who have been jobless for a year or more, reached a historic high of nearly 32 percent in the third quarter of 2011, or 4.4 million workers. This is the highest rate since World War II. However, similar to the overall unemployment rate, long-term unemployment has slowly started to show signs of improvement. In the fourth quarter of 2011, the number of long-term unemployed had fallen to 4 million workers, slightly more than the total population of Oregon. Although the recession was officially over in June 2009, according to the National Bureau of Economic Research, economists expected unemployment to take some time to get better. The gradual improvement reflects that unemployment is a lagging indicator of economic recovery, meaning that it takes some time for unemployment rates to decrease following the official end of a recession. While the unemployment rate remains high, it has already started to decline and is expected to continue to go down as the economy recovers.

Q: What is the impact the Great Recession and enduring unemployment could have on family incomes and economic mobility in the future?

A: (Erin) The Economic Mobility Project recently released a fact sheet, Ups and Downs, that puts American families’ prospects for recovery into historical perspective by analyzing incomes following prior economic downturns dating back to 1967. Focusing on the gains and losses among working-age adults from 1967 through 2004, we see similar patterns emerging in Americans’ income changes over time. For instance, half of adults who experienced a one-year income loss of more than 25 percent recovered within four years, a recovery rate that was stable over time. However, 34 percent failed to recover within 10 years. These findings shed light on the impact the Great Recession and its aftermath could have on family incomes and mobility into the future.

Q: The Pew Fiscal Analysis Initiative recently released a new chartbook, Five Long-Term Unemployment Questions. What are some prominent findings from the research behind that series of charts?

A: (Ingrid) Our recent chartbook examines various dimensions of the country’s long-term unemployment predicament and answers questions regarding who comprises the unemployed population, where they live, and how long they have been out of work. Our analysis of data from the fourth quarter of 2011 shows that long-term unemployment occurred among all age groups, education levels, and races/ethnicities, although some groups were more likely to have been unemployed for a year or longer. For example, during this period, workers age 55 and older were the least likely to experience unemployment, but among people without jobs, these workers were the most likely to have been jobless for a year or more. In the fourth quarter of 2011, blacks and Hispanics were the most likely to lose their jobs, but among those without employment, Asians and blacks were the most likely to have been jobless for a year or longer.

Q: Does the benefit of continued education provide a strong barrier against some of these economic woes?

A: (Ingrid) Chief among our findings is the discovery that, during the fourth quarter of 2011, against common notions, unemployed individuals with higher levels of education were just as likely to be experience joblessness for a year or longer as those with only a high school education. (Erin) However, outside of long-term unemployment, education still stands as a prominent shield against economic insecurity. Educational attainment strongly influences Americans’ chances of experiencing large income gains and drops. In our research of previous economic downturns, recovery from a 10-year income drop was most common among couples who lived together and college graduates. Moreover, research finds that Americans who start at the bottom of the income ladder quadruple their chances of making it to the top when they earn a four-year degree. Unfortunately, the pursuit of education is not within reach of all American families; higher education decisions are highly sensitive to fluctuations in family resources. The Economic Mobility Project conducted additional research to assess how changes in housing wealth during the recent boom and bust affected students’ post-secondary education decisions. The report, Housing Wealth and Higher Education: Building a Foundation for Economic Mobility, demonstrates that for every $10,000 in home equity gains, the likelihood that low- and middle-income families will enroll in college increased by 6 percent.

Q: How does this recession compare with previous recessions and what are the implications of long-term unemployment or an income loss?

A: (Ingrid) As expected, there was a spike of permanent layoffs during this recession. However, unlike previous downturns, this recession was marked by a decline in temporary layoffs, where unemployed individuals were expecting to return to work for the same employer. In the fourth quarter of 2011, 49 percent of workers were on permanent layoffs, while only 9 percent experienced shorter, temporary jobless periods. Some of this shift could be attributed to the long-term decline in manufacturing, an industry in which workers were generally called back from temporary layoffs when production picked back up. The severity of the long-term unemployment challenge could be related to a number of factors, including what it is called “unemployment scarring.” The term refers to situations where individuals have been out of work long enough to face the risk of depressed wages in the future or a lack of interest from employers that may fear that they have lost some of their skills. (Erin) The implication of such a significant share of Americans undergoing extended periods of financial harm is concerning: the Economic Mobility Project’s research finds that in recent decades, a longer setback has a much deeper impact on future stability. About half of those experiencing large income losses over 10 years experienced even larger income gains in the subsequent 10 years, but the other half failed to fully recover. In fact, people who experienced a large 10-year income drop fell even further behind in the subsequent 10 years.

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