EPI News

Recovery Act investments start to pay off, but long road remains ahead

As the recession passed the 500-day mark it appears the economy may soon stop its descent, a milestone that would technically be considered the end of the recession. If so, this would be due to the intervention of the American Recovery and Reinvestment Act, which provided support for needy families, relief to the states, tax cuts for workers, and helped boost demand and jobs. The continued loss of jobs and the expected slow growth in the remainder of the year suggest that high unemployment will be with us for a long while to come.

Unemployment will rise further before it falls significantly
Although the Labor Department reported an additional 247,000 jobs lost in July, EPI economist Heidi Shierholz saw evidence that the American Recovery and Reinvestment Act is starting to provide a significant boost to the economy: job losses in the last three months have averaged 331,000, a decline from the average 645,000 monthly loss in the six months prior to that. Unfortunately, the economy and the overall employment picture have deteriorated so significantly that it will be a long road back to recovery.

How bad has the deterioration been? In July, the number of workers who have been unemployed for more than six months increased by 584,000 to 5 million. Some 3.2% of the labor force has been unemployed for at least six months, a level that easily surpasses the prior record of 2.6% set in 1983. And, if the official unemployment data counted marginally attached workers — those who want full-time work but have settled for part-time work or have grown too discouraged to look for work — the country’s jobless rate would be 16.3%.

In an interview with The Washington Post, EPI President Lawrence Mishel stressed that, despite the slight dip in July, unemployment is still set to reach 10% before seeing a significant, sustained improvement. “Unemployment will be rising for the next year or more,” Mishel said.

More research on health care reform
A body of in-depth research from EPI’s director of Health Policy Research Elise Gould, economist Josh Bivens, and researcher Alexander Hertel-Fernandez explores multiple aspects of the health care debate and shows how reform could benefit specific groups of workers and sectors of the economy. In The Health Care Free Ride, the authors look at ”deadbeat industries,” those that provide health insurance to comparatively few of their workers and their families.

The Issue Brief confirms what has long been suspected: that employers in traditionally “high-coverage” industries (such as public administration, mining, information, and manufacturing) tend to be key providers of coverage for workers’ spouses and children, while other industries (e.g., services, arts, entertainment, and recreation) are relative laggards. These differences by industry may explain differing stances among employers on health care reform. In Should I Play or Should I Pay, the same authors examine the variations by industry in employer contributions to workers’ health care coverage and explain how different firms are likely to respond to a “play-or-pay” system in which employers that do not provide health insurance to workers would be required to pay a surcharge.

Another wrinkle in the debate involves current legislation in the House of Representatives that would limit the maximum amount families earning less than 400% of the federal poverty line would pay on insurance premiums. Members of the Senate Finance Committee have proposed limiting those subsidies to families earning 300% of the poverty line. In the EPI Issue Brief, Expanded Subsidies Are Essential to Health Reform, Gould and Hertel-Fernandez estimate how lowering subsidies from 400% to 300% of the federal poverty line would affect the median family in every state. Under such a scenario, the median family in 18 states would lose an average of $5,000 in subsidies to help purchase insurance. This would force many families to spend large portions — easily 15% to 20% — of their incomes on health care premiums. Nationally, about 42 million individuals could be affected by such a cut. The authors argue that policy makers need to ensure that subsidies are at least maintained for those up to 400% of the poverty line, if not increased further.

Finally, Rite of Passage, a paper published by The Commonwealth Fund and co-authored by Gould, finds that young adults are one of the largest segments of the U.S. population lacking health insurance, and shows how health care reform could help cover 13 million uninsured young adults.

GDP still contracting, but at a slower rate
In another sign that stimulus spending has helped lessen the severity of the recession, the Commerce Department reported late last month that gross domestic product (GDP) contracted at a 1% annual rate in the second quarter of 2009, following a 6.4% decline in the previous quarter. “Despite the overall contraction,” wrote economist Josh Bivens, “the fingerprints of the American Recovery and Reinvestment Act could be seen in some aspects of (the) report…. State and local government spending grew at a 2.4% annual rate, the fastest growth since the middle of 2007. It is clear that the large amount of state aid contained in the ARRA made this growth possible.”

Also in the news
A New York Times column about the country’s continued job loss cites EPI data showing that the United States has fewer jobs today than it did in 2000, even though the labor force has grown by about 12 million workers. A Miami Herald story about increased labor force participation by Americans aged 55 and older quotes economist Shierholz explaining that the trend most likely reflects reduced retirement security. A story in American Muslim on the black middle class quotes Lawrence Mishel estimating that 40% of black Americans will have experienced unemployment or underemployment by 2010.