Overview from the CQ Researcher on "Vanishing Jobs"

By Peter Katel, March 13, 2009

A layoff last year knocked Duane Simmons’ life off its foundation.. “I don’t hold it against nobody,” the 62-year-old machinist says, without apparent bitterness, “because the same thing is happening everywhere.”

Indeed, in February alone, a record 651,000 Americans lost their jobs, pushing the unemployment rate to 8.1 percent – the highest in 25 years – and the number of unemployed workers to 12.5 million. A whopping 4.4 million jobs have been lost just since the December 2007 start of The Great Recession – as The New York Times calls the current economic crisis.

Simmons’ troubles began when Kennametal, a global metalworking, mining and tool company, bought Manchester Tool Co. of New Franklin, Ohio, where Simmons had labored for 33 years – virtually his entire working life. Kennametal quickly closed the plant where Simmons worked.

He moved his family to Newton, N.C., but his hopes for a new job have failed to materialize. Back home in Ohio, Simmons’ $900-a-month home mortgage proved too heavy a burden, and soon the house was in foreclosure. The pressure of other debts forced Simmons and his wife into bankruptcy. And once his 26 weeks of unemployment insurance were exhausted, the couple began dipping into savings to pay rent and other expenses, with a little help from their son.

As the financial crisis last year expanded into all sectors of the economy, jobs and joblessness became the No. 1 issue for millions of Americans. A poll conducted for The Associated Press in mid-February showed that 47 percent of respondents were worried about losing their jobs, and 65 percent knew someone who had been laid off.

The pace and scale of layoffs accelerated in early 2009, with Jan. 27 an especially bleak day: Companies announcing big layoffs that day included Home Depot (7,000), Caterpillar (20,000), Texas Instruments (1,800) and Sprint Nextel (8,000). All in all, the first month of the year saw 598,000 jobs evaporate. Then in February General Motors eliminated 10,000 more jobs, even though struggling carmakers had already cut their workforce in 2006-2008 by 80,000, using buyouts and early retirements.

Each layoff announcement accelerates the economic decline that President Barack Obama and his team of economic advisers is struggling to reverse. “Without jobs, people can’t earn,” he said in mid-February at the signing ceremony in Denver for the $787 billion American Recovery and Reinvestment Act – the so-called economic stimulus bill – designed to “create or save” 3.6 million jobs. “And when people can’t earn, they can’t spend. And if they don’t spend, it means more jobs get lost. It’s a vicious cycle.”

Critics – even some liberals – say more needs to be done. “The Obama administration is . . . trying to mitigate the slump, not end it,” wrote Princeton University economist Paul Krugman, winner of the 2008 Nobel Prize in economics and an influential New York Times columnist. “The stimulus bill, on the administration’s own estimates, will limit the rise in unemployment but fall far short of restoring full employment.”

But White House Chief of Staff Rahm Emanuel dismissed the idea that a bill sized to Krugman’s satisfaction could have gotten through Congress. “How many bills has he passed?” Emanuel carped in The New Yorker.

In fact, despite Obama’s call for bipartisanship, every single Republican in Congress – save for three senators – voted against the stimulus legislation, which includes billions of dollars to finance public-works spending. Many GOP leaders are denouncing the sweeping measure on the grounds that increased government spending alone won’t end the job losses.

“It’s filled with social policy and costs too much,” said Mississippi Gov. Haley Barbour. “You could create just as many jobs for about half as much money.”

But other Republican governors, especially those in hard-hit states, backed the president. “I think he’s on the right track,” said Gov. Charlie Crist of Florida, which lost more than a quarter-million jobs last year.

Nationally, layoffs are eliminating jobs far beyond blue-collar workers like Simmons in the ever-shrinking manufacturing sector. The financial-services industry is shedding so many workers that in New York City – the nation’s financial capital – Mayor Michael Bloomberg has announced a $45 billion retraining program for pink-slipped investment bankers.

“I have competitors closing up shop and going to live with their parents,” says a financial software specialist in the New York area whose own contracts with banks and hedge funds have vaporized.

Newspapers and magazines, already reeling because millions of readers are going to the Web for free news, are laying off thousands of reporters and editors as advertising, the lifeblood of the news business, slows to a trickle. Newspapers have cut more than 3,000 jobs already this year, after slashing more than 15,000 in 2008, according to “Paper Cuts,” a layoff monitor.

“I’d like to stay in journalism,” says journalist William Triplett, who recently lost his job as Washington correspondent for Variety, the entertainment-news daily. “But I don’t know if I can make a sustainable living at it.”

Major law firms have laid off 6,598 lawyers and staff members since Jan.. 1, 2008 – more than half of them since the beginning of this year.

Health care is one of the only sectors of the economy adding jobs, according to the U.S. Bureau of Labor Statistics: It showed a 30 percent increase in employment between February 2008 and February 2009.

With few exceptions, the impact of the stimulus legislation has yet to be felt. In early March, state officials and politicians across the country were still drawing up lists of projects they planned to start with the new funds.

Meanwhile, Americans who have been laid off or who fear layoffs have cut back on shopping – forcing more layoffs in retail and manufacturing.. Consumer spending fell 4 percent in the second half of 2008 after rising steadily for more than 20 years, the Commerce Department reported in March, and savings rose to 5 percent of disposable income in January – a 14-year high.

“People who lose their jobs are going to be spending less,” says Heidi Shierholz, a labor economist at the Economic Policy Institute, a liberal think tank. “For people hanging onto jobs in this climate, there is enormous economic insecurity. If you have the opportunity to build yourself a little cushion, putting off big-ticket purchases, now is the time you’re going to do it – which further pushes out the recovery, until we get people feeling confident again.”

But economists say the vicious cycle of layoffs, reduced spending and business retrenchment or outright failure won’t wind down for some time. The Federal Reserve’s influential Open Market Committee, which sets interest rates, concluded in late January that unemployment will “remain substantially above its longer-run sustainable rate at the end of 2011, even absent further economic shocks.”

As the economic meltdown continues – worldwide as well as within the United States – references to the Great Depression of the 1930s are increasing. In late February, Mark Zandi, chief economist of Moody’s Economy.com, told The New York Times it was becoming more likely that the recession could turn into a “mild depression.”

His “mild” qualifier is rooted in historical reality. Americans haven’t reached anywhere near an early-1930s level of misery. By 1932, the year Franklin D. Roosevelt was elected president, the unemployed “lived in the primitive conditions of a preindustrial society stricken by famine,” a leading historian of the era wrote.

In fact, conservatives cite statistics showing that today’s 8.1 percent unemployment rate has not even reached the level of the 1981-1982 recession, when the jobless rate reached 10.1 percent. “We’ve had worse recessions,” says James Sherk, a labor policy fellow at the Heritage Foundation. “This is not the most painful, so far.”

But Heather Boushey – a senior economist at the liberal Center for American Progress, which has close ties to the Obama administration – points out that there are 5 million more people unemployed compared to a year ago. “This is the largest annual jump in the number of unemployed since the U.S. Bureau of Labor Statistics began tabulating this data just after World War II,” she writes.

Roosevelt ’s New Deal – a set of programs designed to stimulate the economy, create publicly financed jobs and regulate business and financial practices – dented unemployment but hardly ended it. By 1940, the year before the United States entered World War II, 14.6 percent of workers were unemployed – well below 1933’s catastrophic level of 25 percent but above the annual rates since then.

Economists and historians are still arguing about the New Deal’s effectiveness in countering the Depression. But not in dispute is the social safety net created by the Roosevelt administration, including unemployment insurance (UI).

In 2008, laid-off workers received more than $43 billion in UI payments, including $34 million in “extended benefits” designed to counteract the effects of unusually high unemployment. But only 37 percent of laid-off workers receive benefits, in part because some states exclude part-time and temporary workers. And some Republican Southern governors – including Bobby Jindal of Louisiana – say they’ll refuse stimulus money tied to expanding UI eligibility, which they claim will unfairly burden states in later years.

Even some former full-time workers are excluded from extra benefits. In his new home state of North Carolina, machinist Simmons says he couldn’t get coverage past the standard 26 weeks because he had started withdrawing money from his 401(k) retirement fund. “I found afterward that I can’t get unemployment and the 401(k) at once,” he says. “It’s my fault.”

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