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Monday, January 03, 2011

An Interesting Study On The Job Losers

The study is written up at the NY Times.

The John J. Heldrich Center for Workforce Development at Rutgers interviewed a sample of workers unemployed as of August 2009 (shortly after the recession ended). As of November 2010, 34% had found work. Only 26% of the original sample found full time work. Forty-one percent of the reemployed had to change fields; almost 70% of those took a substantial cut in compensation including both cuts in benefits and wages.

The actual study is worth a read:
For example, you will find charts such as this one which covers unemployment durations:

Since over one third of the panel had been unemployed for more than two years, the "deal" covering unemployment benefits extensions is not that useful.

For that matter, the majority of the 29% unemployed for one to two years will lose their unemployment benefits next, with the majority losing them by summer. Thus, about 59% of the sample will be in a desperate situation by the second half of next year.

In particular, persons 55 or older are in trouble. Over 62% of those in the panel are still looking for work. Only 21% of this age bracket who were unemployed in August 2009 have since found employment. Some have retired; 17% have left the labor force.

Overall I would describe the older persons in this survey as being realistic about economic growth prospects. Most believe that they will have to work after they "retire" in part-time jobs. Another table:

This table covers the responses of the cohort over 50.

Because there is so much slack in labor, it is hard to believe that workers will not have to make continuing concessions.

Less able workers will have to settle for less in the way of income, benefits, savings and general economic welfare.

The logical implication is that younger persons will also see much worse job prospects. Older farts will be taking the jobs teens used to get.

Another implication is that poorer families, which rely to a much greater extent on youth employment, will be hurting for a long time to come.

I have a friend, currently unemployed, in her 50s. She was working at a pharmaceutical company as an executive assistant. She lost her job about two years ago and was on unemployment for several months. She found a temp job and after a year, it worked into a permanent job. She lost that job this year. Her husband is a Navy vet of 20 years who is not a lot of help. He has a drinking problem and hasn't worked much since he left the service.

They managed to refinance their home while she was unemployed the first time. She practices food storage, so she's been able to get by on unemployment. Still, life will be easier for them when her husband is eligible for Social Security. I know it's an unpopular position, but it would be better for our society to allow those in their 60s to go on SS and open up those jobs for the young. I can't see anything but more problems ahead when we insist that the old delay retirement to work in jobs that don't exist for them.
Wait until whatever savings they have is devalued.
I'm now convinced that our standard of living won't be
lowered through wage concessions, but inflation and
or dollar devaluation. As contrary as it sounds, a
30 year mortgage at 4.75 % might just be a good hedge.

Spork - surely it depends on whether you can pay that mortgage, and how high the property tax on the property is.

Otherwise, you could end up having bought a nice piece of Buffalo, Camden or Detroit.

There are properties in high tax areas in which your property tax will probably end up being as much as your mortgage already.
Teri - that's one way of looking at it, but the bottom line is that we don't have the money to pay to take the seniors out of the workforce.

They WILL be in the workforce. Most moderate income people will work until they are around 70-72, at least part-time.
I know, but it irritates me that people keep saying to jack up the retirement age to 70. What good is that? There are no jobs out there for those people. Corporations want to dump you when you are in your 50s. Obviously we can't afford to make a bunch of government positions for these people. If they do not have jobs and they don't have social security, they are going to be hitting the local services. Unless we are willing to see old people sleeping under bridges, we have to deal with the issue somehow.
What I never got was that people spend like nuts in early age then save late in life??? WTF? You should save early then blow it all later. The dynamics hint at the ponzi like nature of our system.

Great post MOM.
My thinking is that the charade of selling t-bills will
end within the next 5 years and the Feds will just
print, devaluing the dollar by 30% or so in a 2-3
year period to become competitive with foreign
labor. Austerity will not get us there although it
will be tried in tandem with printing. Higher rates
with bankrupt everyone very quickly otherwise.
Ask yourself, what is in the Federal gov't interest ?
The answer is liquidity and devalued obligations.
No; if the bond markets fail, printing would devalue the dollar by more than 30% in less than one year. The debt that must be rolled over in 2011 is quite large relative to the money supply. Hence MOM's comment a few posts back about government seizure of 401k, IRA, and other retirement accounts. It's what Argentina did, and it has already spread to Europe.
"farts will be taking the jobs teens used to get."

Farts will be taking the jobs they used to get as teens.
Deleted - The first rule of blogging is not to spam other people's blogs, because they get irritated and HATE YOU.
Spork - I am reading the book "Free Trade Doesn't Work" by Ian Fletcher.

You might be interested. His basic answer is to return to a Bretton Woods like system, but that could only be done with consent of all parties.

As to the devaluation, I don't see that being a controllable strategy. The Fed would like to devalue mildly, but our habit of running up our debt in huge increments suggests that we only have a few years before it produces massive overseas flight from our debt.
GYC - In a lot of ways you are right. The path to being middle-class for most was always controlled spending and very controlled debt.

But this is one of the aspects of our situation that concerns me. With younger people going into debt for higher education or technical training, and with fewer and lower paid jobs for them to build up cash from part time, interim and summer work, won't most of the younger generation have a whole lot of debt before they even start on life proper?

The continuing drop in real wages for low wage jobs implies that it will be much harder to get a start on life.

I'm kind of glad to be an old fart rather than a young sprat right now. And I didn't have it easy. I graduated when I was 20 in 1982 into a very high unemployment rate and similar circumstances to the current era, but the point was that we all knew it would improve.

Now, that's not at all uncertain and it would take a major change in direction to achieve such an outcome. Also, we are an older society. Back then, even working at such jobs as I could get, I could afford to pay a major medical policy. Now most of the young ones can't even afford that.

The culture of saving had pretty much vanished but is returning, but the job situation is dire. Until we get more production jobs back, the living standards for most are due to keep dropping.

A lot of older people are coming into retirement with little in the way of savings, mortgages, and very little in the way of retirement income.

And John is right. We are running straight into a brick wall on the borrowing.
Oops - I meant "now that's not at all certain". It is just as easy to forecast a continuing stagnation in the job market as it is to forecast a significant improvement.
John is right, I think most of the theft will come from social security, 401K, and IRA accounts. It's been happening for decades already - the inflation index has always been understated, then the "benefits" were taxed. Some sort of means testing will be next.

When I had a part-time job in '82, I knew the social security savings was going to be depleted to near-nothingness by the time I turned 65, and so far nothing has changed to make me feel otherwise. The SSA will go through the motions of sending you a check, but it'll be relative peanuts and certainly won't cover rent beyond a 400 sq ft apartment.

It is also the reason I never maxed my 401K contributions - I have been good at saving on my own and without matching contributions from the employers, the tax-deferred 401K is subject to a future controlled by the out-of-control borrowing of the present which means there will be special higher tax rates on 401K withdrawals by the time I'm 65. So there really isn't any benefit between a 401K and any standard personal investment account other than the fact that the tax rate you are charged today will be LOWER than the rate you are charged tomorrow. Why delay tax payments to the age you can least afford it?

Democracy doesn't work when the majority are thieves at heart.

John's link about Europe is great by the way. To avoid going on an austerity program, the government forces old people into austerity.
I've always de-emphasized my 401k in my planning, as well. Those accounts are tax-advantaged at the whim of Congress, and are just too tempting a target when the crisis comes.

Productive capital plant and the ability to make it pay is the only thing anybody can count on in times like these.
Neil - yup. And "the ability to make it pay" is contingent on the general economy.

The problem is liquidity goes then solvency. Austerity seizes up the system. My guess is that they may be off the book cash injections into the system already. As has been mentioned, savers in retirement accounts are screwed. If they are going to devalue the dollar then it makes sense to borrow rather than save from an individual's perspective. Savers have been screwed since day one, why would they change the playbook now ?
M_O_M, true, but a professional soldering station, a drill press, or industrial sewing machine (plus the requisite knowledge) purchased for cash can always be made to return something, even if it's just a bottle of hooch.

Which, come to think of it, might be better than cash before too long.
If they are going to devalue the dollar then it makes sense to borrow rather than save from an individual's perspective.

I'm sorry I just don't get this.

In order to borrow, someone has to have the money AND the stupidity to loan the money. Those days are coming to an end. Your choices aren't going to be between saving and borrowing, they'll be between saving and begging.

The problem is liquidity goes then solvency. Austerity seizes up the system.

No, it doesn't. All it means is the price of money goes up. When the price of money goes up, ventures that are unproductive or marginally productive are eliminated or downsized. The whole austerity scare (an exaggeration if there ever was one) comes from entities that know they are unproductive or marginally productive. (Bankers, teachers, DEA, etc.)

You can't have it both ways - you can either have a system where savers actually make money OR you can have a system with extreme liquidity. And only one of those is sustainable.
My wife and I fit into this position. Both 57 and trying to get to 62 at a minimum. Married 37 years. If we lose our jobs, we know that we will never get another. I have a Master's degree in Civil Engineering and a professional engineer and she is a RN.

We are in better shape then most. Paid our house off in 2009 and put as much as possible in savings. No car payment either. Basically no debt now. We are hunkered down and spending only what is necessary. Banking the rest.

Our main problem is health care. I am the problem. I live on a pacemaker. Have been for 13 plus years. On heart strengtheners now, Coreg, 50 mg/day. Came close to needing an ICD last year. Low EF, 30 to 35% without medication (non ischemic cardiomyopathy). Coreg is working well for now. Ran up $55,000 in health care costs in 2009, a new pacemaker and another ablation. Only about $10,000 last year (2010).

I have told her to get ready for contract work with no benefits if even that. I realize that one day I might have to work at Sonic or wash dishes just like I did as a teenager in the 1960's.

Interesting how life plays out. Back to the future or forward to the past.
The entire industrial world is facing a similar crisis. Simply stated, in a "winner take all" economy, the few winners do very well, at the expense of other producers, that did manage to survive and prosper in a more "regional" economy. Now the rather corrupt and non-responsive political climate we find our selves in does not help, but even with the best of folks in office, we would still be facing some difficult issues.

This much is for sure, we in the US are facing some difficult times ahead
Anon - that's a tough one.

You may have to go out on disability. After two years you get Medicare coverage.

You might want to go on your wife's insurance in preparation.

You're looking at a lot of years until 65 and Medicare, and if you ever try to buy private insurance you'll wind up with a hefty 50% mortgage on the house to pay for it.
M_O_M, true, but a professional soldering station, a drill press, or industrial sewing machine (plus the requisite knowledge) purchased for cash can always be made to return something, even if it's just a bottle of hooch.
Hooray! I've got that one covered, Neil. I did buy an industrial sewing machine and I've worked in sewing factories before. So far, I've just redone the stepson's car seats but am angling to see if I can get a bit more out of the machine. (Will likely have an old sewing machine guy take a look at it before I get too serious.)

I'm convinced that the best course of action, for most geezers, is to start a business of some sort, even if it's a small one. Several small businesses would be even better.
Teri - uh-huh. Many "retired" persons now do odd jobs (driving, chores, etc) for older really retired persons.

Whatever it is, even a few hundred in extra income a month makes a huge difference.
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