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Young And Middle-Income Californians Hit Hardest in Recession

Audio

Aired 9/6/10

The young, the long-term unemployed and middle-income households continue to bear the brunt of the recession in California. We discuss the Labor Day report of the non-profit, non-partisan California Budget Project.

ALISON ST JOHN (Host): You’re listening to These Days on KPBS. I’m Alison St John in for Maureen Cavanaugh. The economic downturn has touched everyone one way or the other, but a new report out for Labor Day reveals that some Californians are disproportionately affected by the lack of jobs. Also the length of time it takes to find a job if you are unemployed is getting longer, and the data also shows income gains for high end people have far outpaced income gains for the middle class and lower paid workers. So with us to give us a picture of how the job market is affecting people is Alissa Anderson, deputy director of the California Budget Project. Alissa, thanks for being with us.

ALISSA ANDERSON (Deputy Director, California Budget Project): Thanks very much for having me.

ST JOHN: So give us an overview. How are we doing in California this Labor Day? Are things getting any better?

ANDERSON: You know, not really. We titled our report “Stuck Between a Recession and Recovery,” and I think that perfectly captures where we are right now. We titled our report ‘stuck’ because economists have been telling us for a year now that the recession is over but it certainly doesn’t feel like the recession is over to most workers and their families. And that’s because we’ve seen very little job growth this year. We only added about 65,000 jobs since the beginning of the year. Compare that to the fact that we lost 1.4 million jobs during the recession. That’s about equal to the population of San Diego. And so the small number of jobs we’ve gained this year has done little to fill the massive hole in our job market. As a result, we’ve seen the unemployment rate essentially flatline and the ranks of the longterm unemployed, people who’ve been out of work for more than half a year, continue to grow. So all of the data we present in our report, I think, clearly show that California’s job market is still the weakest it’s been in decades.

ST JOHN: So we’ve only added back about half the number of jobs that were lost so how many…

ANDERSON: Well, actually only about 5%.

ST JOHN: Oh, 5%, okay.

ANDERSON: Uh-huh.

ST JOHN: So that’s the trouble, me trying to do math on the air.

ANDERSON: It’s very – No, that’s fine.

ST JOHN: I’m glad you clarified that, Alissa, because that is just…

ANDERSON: Very small number of…

ST JOHN: …a shocking illustration.

ANDERSON: …jobs.

ST JOHN: So how many people are currently out of work in the state and how long have they been unemployed?

ANDERSON: More than 2 million people are currently out of work. Nearly 1 million Californians have been out of work for over half a year. We’ve never seen numbers like this before. On average, the average jobless Californian has been searching for work for 8 months, and that’s a record high. Just imagine going without your paycheck for eight months. And we know that the longer workers go without work, their odds of finding employment worsen so somebody who’s been out of work for a month or less has three times the chance of finding a job as somebody who’s been out of work for over half a year. So people who’ve been looking for work for more than half a year are really having a tough time right now.

ST JOHN: What about people who do actually have a job but it’s not as many hours as they had before, it’s not enough to pay the bills. What about underemployment?

ANDERSON: That’s right, we’ve seen a huge increase in underemployment during the recession. We actually now have the shortest work week in 25 years, and that’s because in addition to laying off workers or not hiring new workers, employers have dramatically cut back on their existing workers’ hours and they’ve done that to cut costs. If you were to add up all of the hours that were cut throughout the recession for all Californians, we could actually create almost 400,000 jobs, fulltime jobs, out of all of those hours. That gives you a sense of just how much employers have cut workers’ hours. And we know because of the reduction in hours, many workers are taking home even smaller paychecks each week.

ST JOHN: So that includes the furloughs that we’re hearing about but also in the private sector as well, huh?

ANDERSON: Exactly, that’s public and private sector combined.

ST JOHN: So now one of the most interesting findings in your report was the fact that the downturn has been particularly hard on certain age groups. What did you discover?

ANDERSON: Well, we took a look at 16 to 24 year olds and we took a look at people who are not in high school and not in college, and that’s because we wanted to focus on young adults who are most likely to want a job. And we found that the weak job market throughout the recession took really a devastating toll on young Californians. We found that employment for out of school youth fell far more than for any other age group and, in fact, we found that for the first time on record a smaller share of out of school youth had jobs than adults approaching the traditional retirement age. That was a really striking finding. And this reflects the fact that the share of young adults with jobs fell throughout most of the past decade. The 2000s were really a bad decade for workers because we had two national recessions, one at each end of the decade, and then we had an unusually weak economic recovery in the middle. And so we found that employment for young adults never fully rebounded from the first recession before another one started. Now on the other hand, employment for older adults has been increasing since the early 1990s with the exception of a small drop in 2009, and we know that many older workers are staying on the job later in life because they can’t afford to retire. And I think that was especially true in recent years. Many people saw their retirement savings drop when the stock market tanked in 2007 and 2008 and so what this means is older workers are postponing retirement. That means fewer positions have opened up for the next generation of workers.

ST JOHN: So there’s a sort of bottleneck at the top of the job market. Do you think healthcare plays a role there in the sense that people in their mid-fifties can’t afford to retire because they can’t afford to pay health insurance until…

ANDERSON: Well, certainly we know that fewer employers are offering retiree healthcare…

ST JOHN: Umm-hmm.

ANDERSON: …and that’s because of rising healthcare costs. And so that creates the incentive for workers to stay on the job until they qualify for Medicare.

ST JOHN: So do you think that it’s to do with people hanging onto their jobs longer at the backend of their career? Or do you think it’s to do with the job market changing? That there just aren’t so many jobs for young people without a college education?

ANDERSON: I think it’s both. I think, certainly, you know, the recession has made things much tougher for people fresh out of school trying to get into the job market but at the same time we’re on the end of this trend where we’re seeing more and more older workers staying in their jobs. That means even without the recession, I think fewer positions would be opening up for young workers.

ST JOHN: And are college grads also affected by this trend?

ANDERSON: Yeah, that was one of the most striking findings in our report. We saw a sharp decline in employment for recent college graduates. The decline in employment for recently college graduates was almost as great as the drop in employment for recent high school graduates, and I found that very surprising because we know, traditionally, having a college degree tends to provide greater job security when the job market’s weak. We didn’t see that during this recession and I think that underscores the fact that this recession was very severe, that all groups of workers were affected. And just throw out a statistic for you, we found that one out of four recent college graduates were either unemployed or underemployed in 2009. That’s up from one in ten before the recession began. So, you know, just think of all the lost potential there. So many college graduates got their degree, wanted to get into the job market and now are spending time out of work or maybe they’re stuck in a deadend job.

ST JOHN: And probably stuck at home with mom and dad, too…

ANDERSON: Exactly.

ST JOHN: …as most parents are aware.

ANDERSON: I think anecdotally we hear a lot about college kids moving back home because they can’t find a job and they can’t support themselves.

ST JOHN: Taking them a long time to turn around here. So now you also found that the incomes of middle income Californians have lost ground since 2000. Tell us about that some.

ANDERSON: Right. That’s right. Exactly. So we took a look at data from the Franchise Tax Board and, as you said, we saw middle income Californians losing decade (sic) for nearly a full decade. I’ll give you a number. The average middle income Californian earned about $4,500 less in 2008 than in the year 2000 and that’s after adjusting for inflation. And I should point out, 2008 is the most recent year we have data. And, again, this reflects the fact that the 2000s were not a good decade for workers. We know that middle income families derived the vast majority of their income from earnings from work, so when the job market isn’t tight, we see that impact workers’ wages and salaries and we see that impact their incomes. Now on the other hand, we found that the incomes of the very wealthy have skyrocketed for more than a decade. The average income of the wealthiest 1% spiked by 78% between 1993 and 2008, and that’s the longest period of time we have here with the Franchise Tax Board data. And so as a result, we find that the gap between the top 1% and middle-income Californians has been widening. The average person in the top 1% had an income of about $1.4 million in 2008, that’s 39 times the income of the average middle income Californian.

ST JOHN: In some ways, that’s counterintuitive in the sense that you would’ve thought that income from investment might have dropped, too, in recent years.

ANDERSON: And that’s true, and so I was describing the longterm trend.

ST JOHN: Umm.

ANDERSON: Now between 2007 and 2008, we did see a drop in the incomes for the very wealthy and you’re right, that’s because the wealthy derive a large share of their incomes from capital gains, so their incomes tend to fall when the stock market declines. And so we saw a little bit of a narrowing between the top 1% and middle income Californians in 2008 but I should point out that in spite of that narrowing, the gap still remains about twice as large as it was at the beginning of the 1990s. And leading experts on income trends anticipate that this narrowing will only be temporary. We saw this happen during the last recession when the high tech bubble burst; we saw the incomes of the wealthy decline. But as soon as the stock market picked back up, we saw their incomes rise again and we saw widening in equality widen once again. So the longterm trend is toward widening in equality in California.

ST JOHN: So you have some comments in your report about a Democratic proposal in the legislature in California for something called a tax swap, which you say is ill advised. What is it and how – who would it affect?

ANDERSON: Sure. Well, so the income trends in our report, I think, remind us that tax policy can be used either to widen or to narrow income gaps. And this tax swap proposal, Democratic legislative leaders proposed it as part of a proposed budget solution and it would disproportionately affect middle income families while sparing those with high incomes, and we don’t think this is a good policy because economists tell us that it’s economically preferable to raise taxes on those with high incomes when the economy is weak and that’s because people with plenty of money typically save a large portion of their incomes. So increasing their taxes doesn’t change how much they spend in the short term, and spending is what keeps the economy going.

ST JOHN: So this affects federal policy as well, I should imagine.

ANDERSON: That’s right. Well, I think there’s some good news here. All the economic data seems a bit grim but the good news is that when the private sector isn’t hiring, public dollars keep the economy moving. And I think there’s no question that the job market would be a lot worse if it weren’t for federal economic recovery efforts. The latest analysis shows that as many as 3.3 million Americans owe their job to the Recovery Act which was signed into law in early 2009. So recovery efforts have prevented an even deeper recession but the fact that the economy has stalled suggests that there’s more work to be done and so we would look to Congress on one hand to provide another extension of federally supported unemployment insurance benefits. Those benefits are slated to expire in November, and that’s long before there’ll be enough jobs to significantly reduce the ranks of the unemployed. And economic modeling shows that providing unemployment insurance benefits is one of the most effective ways to boost the economy and that’s because the unemployed spend their benefits quickly and they spend them locally. And so that injects money directly into local communities, so providing unemployment insurance benefits to the jobless is not just good for workers and their families, it’s good for the economy. We would also look to Congress to extend something called the TANF Emergency Fund. That’s a fund that was created by the Recovery Act, and California counties have successfully used this fund to create thousands of jobs so it’s put families back to work, it’s pumped dollars into local communities, but this program is going to expire at the end of the month unless Congress extends it.

ST JOHN: Alissa, thank you so much for all that information.

ANDERSON: Okay, thanks very much.

ST JOHN: That’s Alissa Anderson, deputy director of the California Budget Project, with her latest report on how the economic downturn is affecting people here in California and some of the policies that are also making a difference. Stay with us. Coming up on These Days, it’s back to school time for most families. How might the new school year look different for returning students and teachers?

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