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Time To Put Unemployment Front And Center

The headlines regarding last Friday’s employment report were mostly variations on the same theme: It’s not good, but it could be much worse.

American unemployment remains a giant problem. The recent haggling over the debt ceiling and government spending did not address it, and though President Obama has paid lip service to the issue, there has never been real follow-through.

The “good news” from last week: Unemployment fell from 9.2 percent to 9.1 percent.

While this is a move in the right direction, remember that 9.1 percent only represents the people actively looking for work. About 193,000 people left the labor force last month, while only 117,000 jobs were added. As Tony Crescenzi, portfolio manager at Newport, California-based PIMCO, pointed out: “Keep in mind also that the survey period for the July payroll report ended in the week ended July 16th, which was well before anxieties [about the debt ceiling] grew.” This minor upturn may be brief.

It’s also important to consider that if we include workers who are involuntarily part-time and those who have given up looking for work within the past year – these figures added to unemployment create the so-called “U-6” number or the “broader unemployment rate” – the number is a little over 16 percent, or between 24 and 25 million Americans. I just returned from a trip to Spain, where unemployment is just over 20 percent; at first this sounds staggering, but the United States isn’t doing significantly better.

Since the problem is so important, it’s unsurprising that politicians, both federal and local, discuss the topic a great deal. As soon as the debt ceiling mess was over, the White House’s website featured “Putting Americans Back To Work” as its top slogan. But the problem has been with us for several years now. Why no notable improvement?

I suspect part of the problem is that unemployed people are not a highly desirable voter block. They’re not organized or mobilized, and they certainly aren’t major political contributors. While politicians of both parties would love to take credit for job creation, the bipartisan atmosphere in Washington makes it hard to picture any effective job-related legislation quickly moving through Congress.

Additionally, in contrast to the vast public sector hiring of FDR’s New Deal, today’s politicians attempt to create jobs in the private sector, indirectly. This can create all sorts of catch-22s; lowering taxes or offering a payroll tax holiday may encourage more hiring, but the government is already hurting for revenue and might have to cut programs like education or infrastructure as a result, which will hurt the job market in the future. Alternately, increasing spending now will necessitate more debt, more taxes or both.

The economy and political inaction aren’t the only causes of all this unemployment. As Larry Elkin has observed in this space, artificially raising the minimum wage and cracking down on unpaid internships has led to young and unskilled workers competing for fewer jobs, and created a generation of young people who can’t get a grip on the first rung of the employment ladder. Additionally, the need for training and re-training is rampant. The McKinsey Global Institute recently found that 40 percent of firms in their survey of 2,000 had positions open for at least six months for lack of qualified candidates. Of the jobs that do exist, many are those for which the unemployed aren’t qualified.

The Federal Reserve may very well start another round of quantitative easing shortly to stimulate the economy. Hopefully Ben Bernanke and the Fed have some new tricks up their sleeve. Flooding the economy with cheap money and lowering interest rates may stimulate the movement of money to riskier projects or investments, but it simply does not motivate employers to hire. If it did, we would have seen it by now.

What can the government do? A bipartisan committee suggested an infrastructure bank earlier this year, which would serve a needed purpose and create jobs for both skilled and unskilled workers. Obama has called for a version of this since his presidential campaign began, and it would echo the New Deal theory of public sector job creation; on the other hand, selling new spending will be hard in the wake of the debt ceiling debacle.

Regardless of what is done, we need both short- and long-term job growth, and the short-term growth needs to happen quickly. The longer a worker is unemployed, the faster they lose the connections, skills and knowledge that make them assets in their jobs. Worse, as a recent New York Times article described, many employers refuse to consider applicants who are currently out of work. The unemployed aren’t a legally protected group, so hiring managers can and do ignore them when searching for qualified applicants. But this practice will help lead to two lost generations of workers if left unchecked. Older workers aren’t given an opportunity to adapt; younger workers face a lifetime of potentially stunted earnings and productivity.

The unemployed are a large chunk of our population, and their numbers aren’t diminishing. We would need to create 176,000 jobs every month for seven years to return to 5 percent unemployment, which is considered normal. While the country’s debt burden is worrying, unemployment needs to be front and center on our economic agenda. Without the foundation of a productive and engaged workforce, everything else will eventually crumble.

Managing Vice President Paul Jacobs, of our Atlanta office, is among the authors of our firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. He wrote Chapter 12, "Retirement Plans"; Chapter 15, "Investment Approaches And Philosophy"; and Chapter 19, "A Second Act: Starting A New Venture." He also contributed to the firm’s book The High Achiever’s Guide To Wealth.

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