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EconomicPolicyInstitute July 8, 2011

Devastating Labor Market Backslide

This morning’s release of the June 2011 Employment Situation report by the Bureau of Labor Statistics showed a labor market in retreat. Virtually every single measure was devastatingly weak: only 18,000 payroll jobs were added, average hours declined, nominal wages fell, unemployment was up in almost all age groups, more than 250,000 workers dropped out of the labor force altogether, and the public sector continued to bleed jobs. Furthermore, a downward revision to last month’s data means that this is the second month in a row with job growth at 25,000 or less. This is a remarkable, across-the-board backslide. The President and Congressional leaders need to stop talking about deficit reduction and start talking about job creation. — EPI labor economist Heidi Shierholz

Two New EPI Reports Analyze the Impact of the Recovery

Millions still unemployed at two-year anniversary of “recovery”

It has been two years since the official end of the Great Recession in June 2009, yet the labor market remains in grave shape, with nearly 14 million unemployed Americans. Two new EPI papers compare the Great Recession with past recessions and explore what makes this recession remarkably different from the others.

In Ten facts about the recovery, EPI economist Heidi Shierholz enumerates ten compelling truths about the Great Recession, among which include:

·         The share of the working-age population with a job has not yet improved.

·         Most of the improvement seen this recovery comes from a decline in layoffs, not an increase in hiring.

·         Public-sector jobs have been hit particularly hard in response to budget cuts at the state and local level.

This last point is further explained in this week’s Economic Snapshot, Employment during the economic recovery.

“This decline in government employment is a historic anomaly; public-sector employment actually increased in the two years after official recoveries began in 10 of 11 post-World War II business cycles. The lone exception was in the early 1980s when the economy experienced a double-dip recession,” the Snapshot explains.

Decline in government jobs noteworthy recovery feature

EPI macroeconomist Josh Bivens and Isaac Shapiro, EPI’s regulatory policy research director, delve deeper into what makes the loss of public-sector jobs exceptional in their new issue brief, Historically deep job loss, but not an unusual recovery: Decline in government jobs noteworthy recovery feature. Although the rate of private-sector job creation during the current recovery exceeds that seen in the recovery of the early 2000s and tracks the pace in the recovery of the early 1990s, public-sector job creation this recovery lags behind the rate of the last two recoveries.

Public-sector employment is now 1.9 percent lower than it was at the start of the current recovery. In contrast, government employment rose by 1.1 percent over the comparable period in the recovery of the 2000s and by 2.2 percent in the recovery of the 1990s. This recovery, the public sector has lost 430,000 jobs, primarily at the local level.

Both new EPI briefs conclude that job creation should be policymakers’ chief goal, and underscore that the prospect of a healthy labor market before 2014 is unlikely absent job-creating policy changes.

Social Security COLAs are a protection, not a windfall

In A protection, not a windfall: Proposed change to Social Security COLA would further erode retirees’ financial security, author Josh Bivens finds that a proposed change to the way Social Security cost-of-living adjustments (COLAs) are calculated would result in benefit cuts. While often presented by policymakers as a simple technical fix with limited impact, pegging Social Security COLAs to a different consumer price index than the one currently used would have negative consequences on retired and disabled Social Security recipients.

The specific CPI proposed—the chained CPI for urban consumers—is a measure of inflation designed to account for the ability of consumers to substitute away from goods with rapidly rising prices. Because it is based on economy-wide spending patterns, it is inappropriate for calculating cost-of-living benefit increases for Social Security recipients, whose consumption patterns differ from those of the general population.

“Since the Social Security COLA is intended to preserve beneficiaries’ living standards, it should be based on a price index that reflects the spending patterns of beneficiaries rather than the general population or non-retirees,” Bivens explains.

Specifically, the 65-and-older population spends two to three times more than the general population on health care, and health care costs are rising much faster than inflation. A reduction in Social Security benefits arising from the proposed new COLA, combined with the existing rise in health care costs, would hit the oldest Social Security recipients the hardest.  Since the benefit cut imposed by changing the Social Security COLA increases over time, it would drain resources from these “oldest old” households at the point in their retirement when their financial pressures are increasing.

EPI in the news

CBS News cited Algernon Austin’s research on the higher rate of unemployment among African Americans than whites despite their comparable education profiles.

Slate economics writer Annie Lowery cited EPI’s research on youth unemployment in her article “Get a Job, Kid!” She writes, “According to a 2010 analysis by the Economic Policy Institute, the proportion of ‘idle’ teens has actually fallen over the same time period. Nor does the recession explain the drop either. The youth unemployment rate has climbed precipitously, but young Americans started opting out of the labor market long before the economy soured in 2007.”

Daily Kos cited EPI’s work on teacher pay inequities in the article, “The Politics of Education: The Assault on Teachers.”

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