Recession Over? Depends on Who You Ask

Unemployment was already nearing 10 percent in March during this Detroit job fair. Now the Fed says it will stay there into next year, yet orthodox economists are saying the worst is over. Photo: Jim West.

When the Labor Department announced that a quarter million jobs were lost in July, the news was greeted with cheers and backslapping on Wall Street. One week later the Federal Reserve declared the worst was over—we were on our way out of the recession.

Almost as an afterthought, the Fed also predicted that unemployment would stay close to 10 percent until the end of 2010.

If the jobless won’t get a break for more than a year, what explains the sighs of relief from Washington and the celebrations on Wall Street? How is the recession over?

OUR PAIN, THEIR GAIN

Recovery, it turns out, is in the eye of the beholder. And the government’s statisticians—together with most of the media—put a lot more weight on the corporate bottom line than on workers’ day-to-day. To make matters worse, our pain has been their gain.

Productivity rose 6.3 percent economy-wide between April and June. This means fewer people were doing more work, which helps explain why companies from Ford to Caterpillar to IBM reported healthy profits.

Businesses got back in the black by shedding workers, cutting hours, and eliminating everything from vending machines to health benefits. Employers have also used the lousy job market—and the fear and uncertainty that creates—to wring more work out of the workforce, often for less pay. Nothing reminds someone he’s over a barrel like the threat of being fired during the worst economy in living memory.


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Click for pop-up. Sources: BLS, Emmanuel Saez.

According to a recent poll by The Economist magazine, one in six U.S. workers have taken a pay cut. Last month close to 26 million workers were unemployed, when you include those forced to work part-time instead of full-time or those who’ve given up looking altogether. Sixteen states report double-digit employment, with a half dozen others close behind.

Meanwhile, the financial giants who needed nearly $2 trillion in taxpayer bailouts are flying high again. In July Goldman Sachs bagged the biggest quarterly profit in the company’s history: $3.4 billion. Even AIG—the insurance giant turned basket case—showed its first profit in more than a year. No wonder the stock market has climbed 45 percent since March.

And Goldman Sachs is partying like it’s 1999, not 2009. The company has already set aside more than $11.4 billion for bonuses this year, although corporate bigwigs warned employees “to make sure that we’re not being seen living high on the hog,” as one exec told the New York Post.

MORE TO COME

Meanwhile, workers are worrying about whether there’ll be money coming in this year, not how to spend it. There’s little good news on the horizon.

Even though profits are up, there’s little hope for a near-term burst of hiring. Managers will wait as long as possible to see if a rebound is really taking root.

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And today’s technology—from supply chain management software to digital payroll records—allows companies to add workers “just in time.” In the past, firms hired in anticipation of an uptick; now they wait till new orders or higher sales are in hand. But with consumers grappling with mounds of debt, new spending and consumer confidence are still in the tank.

This is especially bad news for the long-term unemployed, workers who’ve been out of a job for more than six months. Last month more than a third of all unemployed workers fell into this category, the highest level since 1948. Moreover, close to half a million will exhaust their unemployment benefits by the end of September, and perhaps as many as 1.5 million by the end of this year.

SAME OLD, SAME OLD

So what will turn recession into a recovery for the rest of us?

For most of the last generation the economy worked according to a simple formula. The rich took the lion’s share of economic growth, while the rest of us made ends meet through easy credit and by working longer hours.

Whenever recession threatened, the Federal Reserve lowered interest rates and bankers were more than happy to prime the pump by peddling more debt. Our economy stayed aloft thanks to credit cards and the stock market and housing bubbles.

But by 2000 Ronald Reagan’s infamous trickle-down had completely dried up, and most workers stopped seeing even the meager gains of the 1980s and 1990s.

In fact, every bit of economic growth in the 21st century has gone to the top 10 percent—those earning at least $109,000. Two-thirds was captured by the top 1 percent—folks earning more than $400,000.

Today’s Great Recession should have been the curtain call for an economic model that has left most workers with less buying power than they had in the mid-1970s, swelled the ranks of the uninsured to 46 million, created income inequality not seen since the Great Depression, and left most of us drowning in debt.

But apparently no one in Washington got the memo. The government’s top economists have been preoccupied with nursing Wall Street back to health so that the speculators can continue on their merry way unchanged. Goldman Sachs’ top financial officer confirmed the back-to-business mentality, telling the business press, “Our model really never changed, we’ve said very consistently that our business model remained the same.”

There was outrage, yes, when the government fattened the fat cats with our money, but it wasn’t enough. So we’ll keep hearing well-paid pundits crow about “recovery” as if 255 million working people didn’t even exist.

A version of this article appeared in Labor Notes #366, September 2009. Don't miss an issue, subscribe today.

Comments

John Brewer (not verified) | 09/09/09

Every recession that has taken place in the last 40 years is just an illusion designed to render the working class in America and to a lesser degree Canada and Europe impotent politically. Keeping the workers poor and in debt, a relative measurement of course, is the dream of the rich and powerful, as they become too busy just surviving to pay attention to what is going on in the world and for those that have the time to pay attention, they are diverted by the garbage pumped out by mass media whether it be the news or the entertainment industry. America needs to take a close look at the slums around some of the third and second world cities around the world that is the future of the American worker if you continue believing the illusion.

KaseyP (not verified) | 02/04/10

Just for my own opinion. I can say that recession is being felt in different ways and I think that it is depending on the condition or should I say it is depending on the income of the person. For some they end up borrowing money. So that they can sustain the needs of their family and even their own needs. There is nothing wrong in borrowing money unless you know how to pay for it.

AdonisW (not verified) | 11/01/09

Too bad, last month close to 26 million workers were unemployed. A lot of large companies have been hit hard by today's recession, and one of the measures they're taking to cut expenditures is to scale back or eliminate matching contributions to employee's 401(k) retirement accounts. If this is an employee straight out of college, it might not be such a big deal, but workers nearing retirement having a cessation of contribution into the 401(k) retirement accounts can be a serious problem. The 401(k), along with Roth IRAs, is the most common retirement savings and investment method. If employers don't resume making any 401(k) retirement accounts contributions any time soon, a lot of people will need debt relief after retirement, when they shouldn't be worrying about anything.