Ohio’s economy no longer fully recovers after recessions
I can’t tell you when or whether a recession is coming. But I can tell you what it means for a place like Ohio when one arrives and what Ohio needs from policymakers, state and federal, to be ready and to recover. After a generation of underinvestment in families, communities and sustainability, the upcoming downturn is a crucial moment to fix the economy by addressing gaping societal needs.
Four points are clear for Ohio and other places. First, recessions are much harder on some economies than on others—this goes for states, like Ohio, that are hit harder, and for communities, like manufacturing communities, poor rural communities, and much of the black community. Second, recessions start earlier and end later in America than in the financial press, in terms of pain they visit on people. In Ohio, we no longer fully recover from recessions, so each new downturn leaves permanent setback. Third, states have insufficient capacity to take on the challenges of a recession. Federal action is essential to get the recovery we need. Finally, recessions are not only economic challenges cured the instant unemployment creeps downward or some jobs come back. In fact, recessions cause long-term damage—to savings and earnings, yes—but also to children’s development, family stability, and long-term physical and psychological well-being.
Job loss and unemployment
First and most importantly, a recession means large scale job losses. This is often particularly severe in manufacturing states like Ohio. As many as 30 million Americans lost jobs during the Great Recession. In Ohio, we actually had not recovered jobs lost in the early 2000s recession by the time the Great Recession hit in 2007. More than 415,000 more jobs were slashed by February 2010 and the 2018 data revisions showed we again haven’t fully recovered—we need 16,300 jobs to reach pre-recession employment levels (reflecting population growth).
In the Great Recession, national unemployment reached 9.9 percent for the year 2009. Ohio fared worse with official unemployment of 11.1 percent in January 2010. As always, rates were higher in struggling communities. Unemployment hit 16 percent for African Americans annually in 2010. In February 2010, six Ohio counties has rates above 19 percent and while two were Appalachian, the pain was spread around the state—in Ottawa County in northeast Ohio, it hit 19.1 percent.
It took ten years nationally before unemployment fell to pre-recession levels. In Ohio, official unemployment levels remained above 5 percent until 2015.
While unemployment is always traumatic, a month of joblessness isn’t nearly as bad as a longer spell—nationally, the Great Recession rendered twice as many people unemployed for half or a full year, compared to typical recessions.
Recessions also lead to underemployment for those who have jobs. This creates long-term labor market penalties—a long spell of unemployment, job loss in mid-life, or taking a low-quality job after losing a better job all leave permanent scars on careers.
In the Great Recession, labor market participation plunged for men by a greater margin than in any previous post-war recession and fell for women after a long upward trend. In Ohio, labor market participation remains suppressed, as some people simply left the labor market and never came back.
The pain is felt by the employed too. For employed Ohioans, job quality eroded during and since the last two recessions. Six of the ten most common occupations in Ohio pay too little for a family of three to escape needing (and qualifying for) food aid, up from four in ten in 2000. Only one of the most common Ohio jobs, registered nurse, pays more than 160 percent of poverty. Back in 2000, four of the most common jobs were at this more middle-class level. Of common Ohio occupations only one now pays more than $35,000 a year.
The number of Americans in historically better manufacturing jobs falls in each recession and never fully recovers. It’s now at 12.8 million, higher than the trough, but below the 17.3 million in 2000 and even further below earlier decades.
Starting a career during a recession leads to enduring earnings reductions—typically lasting ten years. Workers who start at these times wind up in lower-quality jobs and occupations, and can have worse health, more pessimism, and more cynicism.
Income and wealth
We see consequences in Ohio communities. Household income remains lower than before the Great Recession in almost half the counties in Greater Cincinnati. Poverty is worse in a third of those counties. Wages at the bottom are stuck. As a heart-breaking recent series in the Cincinnati Enquirer put it, “The recession ended years ago, and the economy is undeniably better. But for those still trying to find their way back, the road is long and hard.”
When jobs are scarce, workers can become more reluctant to organize. Union membership has been on a long-term slide but declined during the Great Recession to a 70-year low in 2009 (it’s crept up since then).
Fewer unions and worse jobs can lead to “cyclical downgrading” where new jobs spiral down. This is part of why, nationally and in Ohio, we’ve seen an increase in low-wage, insecure jobs—what some have dubbed the “precariat.” This means lost wages, income and wealth. Nationally, during the Great Recession, household net worth plunged by 18 percent or more than $10 trillion, the largest wealth loss since we started keeping score fifty years ago.
Home values plummeted nationwide from $202,000 in 2007 to $179,900 in 2010. Such drops were worse in Cleveland. Tens of thousands of houses on Cleveland’s east side are worth much less than pre-recession. More than 5,000 remain vacant and over 18,000 have been demolished city-wide, leaving over 25,000 vacant properties.
On average, Americans in the bottom 80 percent lost more than one of every five dollars of savings. About twice as many of us (40 percent in 2019 up from 22 percent in 2007) don’t have enough to get through a few missed paychecks, according to Prosperity Now. But some essentials cost more—a four-year public college degree costs almost 30 percent more today than pre-recession.1
Long-term financial security is way down. Retirement savings fell for the American middle class—for the 4 percent of earners in the middle, retirement savings are down by about 8 percent since 2007. But inequality is up.2
Years into recovery, America’s always-too-high child poverty is still elevated—18.4 percent in 2017 up from 17.6 percent in 2007. We never returned to the lower poverty rates we had prior to the early 2000s recession, when statewide, 10.6 percent of Ohioans lived under the official poverty line. This rose to 16.4 percent at its peak and is now still at 14 percent as another recession may loom. Cleveland has the nation’s highest child poverty rate at 48.7 percent in 2017. As with other economic atrocities, Ohioans of all races were more likely to be poor in 2017 than at the turn of the century, but black Ohioans had the highest rates, 28.8 percent, up from 26.5 percent in 1999.
It’s not just homes, jobs and wealth that are hurt in recessions and their wake. Families and lives are ruined as well.
The suicide rate nationally increased 3 percent in the 2001 recession and has consistently risen in downturns and fallen in recoveries according to some analyses.
Economic uncertainty, parental job loss and forced home moves hurt children’s development; hurt physical and mental health; and raise mortality rates—sometimes even decades later researchers can see the downturn in life expectancy among those who earlier lost a job. Job losses can also reduce birth weights, hurt test scores, and suppress later earnings of children born or raised during periods of parental job loss.
When parents lose jobs, their children are more likely to be held back a grade, suspended, expelled or to drop out. They are more likely to fight with their parents, less likely to go to college and may get lower grades once there. Child abuse, domestic violence, family stress, spankings and children’s head trauma all go up when male unemployment spikes.
So, recessions are bad, for everyone. But as with everything else, policy matters. Good policy can shorten a recession or reduce its impacts, and can protect families and communities from the pain recessions cause. How can we be ready, reduce recession-related pain, and get the kind of recovery we deserve?
America has been underinvesting in nearly everything required for strong communities, a sustainable planet, and healthy families for much of the last generation. This makes recessions, when borrowing is cheap, wages are low, and people need jobs, great moments to catch up with long-overdue investments.
- People often act like we need deep innovation to solve problems. In fact, some solutions are very familiar parts of our toolbox. The first line of defense is always unemployment compensation—it is carefully targeted to people and communities who need it most, goes directly to affected workers, ramps up when need is highest, and goes away when people are reemployed. It generally provides workers with up to half of former earnings for up to 26 weeks from a state-level fund. The policy always helped a higher share of white men than women or people of color, and it’s less effective than it once was because states have weakened their systems, reducing the share of people who can get benefits, shortening durations, or erecting barriers to receipt. It used to be routine for the federal government to pay for extended benefits, but this is no longer certain. We must now restore state-level benefits, make sure women and people of color aren’t excluded, and strengthen these systems. It’s also a vital time to prepare a push for federal extended benefits, as is customary during downturns.
- Another easy state policy is expanded overtime eligibility, as was due to happen under the Obama administration but has since been halted at the federal level by the courts. Expanded overtime is essential at the beginning of recoveries when firms avoid adding staff if they can just pile more hours onto existing employees without paying them. By forcing them to pay time and a half for overtime, we not only get more money into employed people’s wallets, we also encourage rehiring of laid-off or other jobless people.
- Countercyclical investment is essential in recessions. It’s a good time to borrow money because inflation is low and more workers are idle. But we should be sure, as the saying goes, not to waste a good crisis. Every time we enter a recession, we want “shovel-ready” projects for the private sector. There is a role for that. But we should use this next recession to expand public jobs. Our communities have intense needs that could be addressed by countercyclical spending that creates jobs now but positions us to be more educated, energy efficient, healthy and financially competitive in the long run. Examples include: erecting wind turbines and solar panels; insulating homes and buildings; repairing infrastructure; abating lead; building public transit infrastructure; preparing for flooding and other effects of climate change; and expanding human services (childcare, pre-K, drug treatment, exercise provision, nutrition counseling). These would employ people now while preparing our communities for the future. During the height of the Great Recession, the Economic Policy Institute proposed a jobs program and Policy Matters sketched out how that could work in Ohio. The Green New Deal animates a similar conversation. Key variables must be federal funding, decent wages, public control of resources, and direct expenditures that transform our communities permanently.
- Avoid tax-led approaches. The Trump administration already deeply slashed corporate taxes and taxes on the wealthy: More than $2 trillion in tax cuts and wages inched up by just 4 percent between April 2018 and April 2019 nationally. The Obama administration’s Recovery Act was also far too heavily weighted toward tax cuts. This delayed the recovery and contributed to the inequality that has climbed since then. Instead, borrowing and spending to ease recessions should be directed toward struggling families and communities and to deep public investments that help everyone. This is far more effective than just throwing money toward the top.
- In communities where job loss is worsened by trade policy, stronger Trade Adjustment Assistance should augment other relief. The program offers support to trade-dislocated workers, including help with training, relocation, cash and health insurance. Its benefits are larger than in unemployment compensation and it provides a pathway into new careers for some workers. More than 124,000 Ohio workers were covered by TAA certifications between 2001 and 2015. But trade with China alone cost more than 121,000 Ohio jobs over that period. We should expand the share of workers eligible for these more comprehensive benefits that more meaningfully restore employment.
- Another crucial element is restoring our weakened safety net. Over the past generation under presidents of both parties, the U.S. has created work requirements, time limits, financial caps and other barriers that deny people food, health or financial support. Programs that once expanded directly with need, making them a perfect countercyclical force, have been block-granted and are consequently much less effective in downturns. Ideally we’d reverse this approach, but that’s unlikely under current leadership. Still, before the next recession, we should minimally give every block-granted program provisions to ensure funding expands adequately during downturns. Work requirements and time limits must also be lifted during the recession. That’s not enough in itself but we should at least dismantle these barriers when unemployment climbs above 6.5 percent.
- Finally, with all of the above, funding must come from the federal government. Because most states can’t run a deficit, they have little ability to respond effectively to a recession. They can spend down their generally tiny rainy-day funds. Beyond that, state policy ends up exacerbating recessions because state policy has to either raise taxes in a bad economy—never popular—or not spend to meet increased need. Federal funding, because it can rely on borrowing, is crucial during recessions and can also ensure that poor states and communities get the help they need.
Moneyed interests never hesitate to mold policy to fit their self-interest in good times and bad. As we contemplate the prospect of a new recession at a time when places like Ohio haven’t recovered from the last one, working people, people of color, struggling families of all races, and our communities should do the same. America needs deep investment to address climate change, repair our infrastructure, and meet human needs.
Those challenges are consistent throughout recoveries. They will be much more acute in any coming downturn. We must demand recession preparation and recession policy that strengthens our economy through the bad times and transforms it when the worst is over.
1. As per Cincinnati Enquirer, citing Bureau of Labor Statistics and National Center for Education Statistics data.
2. Cincinnati Enquirer, citing U.S. Federal Reserve data, showed that retirement savings were up only for the top 10 percent, while they fell for the bottom 90 percent, with the drop being largest for the bottom 20 percent and smallest for the 80th to 90th percentiles.