With the second quarter earnings reporting season underway this week, many companies are posting strong profits. That would suggest a robust economic recovery, were it not for the fact that there is a severe shortage of jobs.
Corporate profits rebound, while labor market sputters
EPI President Lawrence Mishel highlighted the disparity between strong corporate profits and the depressed jobs market in this Economic Snapshot, which tracks the changes in corporate profits and the number of jobs in the United States since the start of the recession in late 2007. While corporate profits have made up all of the ground lost in the recession and more, there are still far fewer jobs than there were at the start of the recession.
Mishel’s analysis shows that corporate profits are up 5.7% since the fourth quarter of 2007, while the number of jobs is down by 5.9%, meaning that more than one out of every 20 jobs has disappeared.
Despite that grim reality, millions of long-term unemployed workers have lost their unemployment insurance benefits since a law extending benefits expired in early June. By the end of this week, 2.5 million unemployed workers will have lost unemployment insurance benefits.
Job seekers face tough odds
As lawmakers continue to debate the need for extended unemployment insurance (UI) benefits, new data from the Bureau of Labor Statistics showed there is a severe shortage of jobs: in May, there were 4.7 unemployed workers for every job opening.
Economist Heidi Shierholz, in her analysis of the new data, stressed that this current ratio is unusually wide, even for an economic downturn. In the prior recession, the ratio of job seekers to job openings peaked at 2.8-to-one. In a recent analysis of monthly unemployment data, Shierholz showed that close to half of all unemployed workers have been seeking work for more than six months. These workers stand to lose their unemployment insurance benefits unless a law is passed providing for emergency benefits.
Unemployment insurance generates jobs
In addition to showing the great need for financial assistance for unemployed workers, a new EPI Issue Brief estimates how effective unemployment insurance has been in preserving and creating jobs by injecting money into the economy. Two for the Price of One, by Mishel and Shierholz, finds that the expansion of unemployment insurance since the start of the recession boosted GDP by 1.7% and added more than 1.7 million full-time equivalent jobs to the economy. Along with extended UI benefits for long-term unemployed workers, the Recovery Act provided for an additional $25 in weekly unemployment insurance benefits and subsidies for COBRA health insurance.
Although some deficit hawks maintain that the country cannot afford to provide extended UI benefits, the authors note that “the actual cost to the budget is far less than the sticker price of the benefits” because they serve to expand the job base, raise tax revenues, and reduce government spending associated with unemployment (such as Medicaid and food stamp expenditures). In fact, the net addition to the national debt is just 40% of the “sticker price” of the legislation.
Recovery Act: Effective and efficient
Economist Josh Bivens provided additional evidence that Recovery Act investments had created jobs when he testified before the House Budget Committee on July 14. Bivens also urged lawmakers to heed the lessons of the Recovery Act and provide additional fiscal support to the economy. “While the economy today would be worse off if the Recovery Act were not passed, unemployment still sits at 9.5% and will surely rise above 10% over the coming year, returning to pre-recession levels only several years from now unless more fiscal support is provided,” Bivens said. He stressed that in addition to being effective, the Recovery Act was relatively inexpensive.
“While the sticker price of the Recovery Act (estimated at $787 billion when passed) is often characterized in press accounts as enormous, it was less than half as large as the tax cuts enacted during the 2000s, smaller than the cost of wars in Iraq and Afghanistan, and, most important, small relative to the economic shock it was meant to absorb,” he said. “Further, because it spurred economic activity and tax collections and reduced the need for safety net spending, its net budgetary impact was likely less than half the $787 billion amount.”
EPI in the news
The Washington Post, The Huffington Post, USA Today, and several other media outlets cited EPI research about the devastating impact of the loss of unemployment insurance for the long-term unemployed. The Atlanta Journal Constitution quoted EPI President Lawrence Mishel in a story about the failure of the Bush-era tax cuts to create jobs. Mishel said the business cycle that ran from 2001 until the end of 2007 “was the first business cycle where a working-age household ended up worse at the end of it than the beginning.” An NPR story about looming job cuts from strained city governments quoted policy analyst Ethan Pollack discussing how falling property values would result in “significant tax revenue losses.”