Unemployment Essay, Research Paper
With a decade of falling unemployment behind us, memories fade as to what actually happens during recessions. Those who have been working for a decade or less have never experienced a recession. It hurts.
Forty years later, I can still remember being fired at age 22 from a summer job in a copper smelter when the demand for copper turned down.
It was not a serious blow economically, but I can recall every detail. While there was no reason to be embarrassed, I was ashamed to tell my parents that I had been fired, even though lots of other people were fired at the same time.
On the other side of the table, it also hurts. The only people who think that firing people is easy are those who have never done it. As a dean at the Massachusetts Institute of Technology, firing people was the hardest thing I did. It keeps you awake at night.
There are a lot of layoff numbers being tossed around in the news these days, but no one ever puts a face on those numbers. They are old, and they are young. They are dads and moms. They are brothers and sisters.
In more impersonal terms, unemployment is what economists call a lagging indicator. If the gross domestic product goes down, unemployment will rise, but it takes a few months. Officially, unemployment numbers are up only slightly; in fact, the latest numbers show that the U.S. unemployment rate held steady at 4.2% during February. The big increases lie ahead of us. There is a lag time because firms delay layoffs to see whether the downturn is real and long lasting.
That’s because layoffs are painful and costly. There are innumerable reasons they should be avoided if possible: Severance payments must be made. Higher training costs lie ahead. The skilled members of the team whom a firm has laid off will not be there to be rehired when times get better. Morale suffers among the remaining workers, and fewer will be willing to make personal sacrifices to help the company when it needs it most.
But you don’t have to wait to be a victim of the downturn. In fact, the best workers often simply bail out — and they should. For skilled, ambitious workers it pays to take another job in a growing company where opportunities for promotion are greater, rather than wait for the market for your current company’s products to turn around. For workers, the economic costs are also a lot higher than simply the amount of money lost while one is unemployed and looking for a new job. And age, invariably, is an overriding factor in your prospects:
* Older workers. Anyone involuntarily laid off over the age of 55 is going to find it difficult to find re-employment. Firms don’t want to incur the higher pension and health-care costs that go with older workers, and they would prefer to train people that potentially could be with them for longer periods of time. Very few older workers are going to find new jobs as good as those they lost. For most, their careers have come to an end. They will finish out their working lifetimes in a series of dead-end jobs.
* Middle-age workers. Those under 55 will find it easier to find re-employment, but they are also likely to be re-employed at lower wage rates. Unless one is a professional worker, getting a job with a new employer means going to the bottom of the seniority lines. This means less pay and a less-interesting job. It is also likely that the on-the-job skills learned at the last employer won’t be either useful or valued at the new employer.
For those laid off in manufacturing, re-employment is apt to occur in the service sector, and on average, service jobs pay one-third less than manufacturing jobs. All of these factors lead to lower wages.
* Young, professional workers. These workers have the best chance of being re-employed at equal or higher wages, but even they face a big problem. Potential employers may know that they have been laid off because of a general market turndown, but there is always the suspicion that they were among the firm’s worst employees at their skill level.
As the unemployment numbers rise in the weeks ahead, the increases will be charted analytically in the media. But it is important to remember that behind each one-percentage-point rise in unemployment, there are 1.4 million people who can tell stories about how the 2001 slowdown hurt them.
The algebra of how many will eventually end up unemployed is simple — and you don’t have to have a recession (six months of negative growth) to get a substantial increase in unemployment. To calculate where the unemployment rate will be a year from now, add the rate of growth of the labor force (about 1% per year) to the rate of growth of productivity (consensus forecasts say 3% for 2001), and subtract the rate of growth of output (consensus forecasts say 2.5% for 2001). Then add this number to the current unemployment rate of 4.2%. The net result will be an unemployment rate in the neighborhood of 6% by the end of the year.
While each of us hopes to not be in that additional unemployment rate, almost 3 million of us will be. Being fired is very painful. No one likes being rejected and told he or she isn’t needed, whatever the reason. For those fired, the key characteristic is not to get down on themselves, but to keep up their self-confidence. It’s hard to get re-employed when a slowdown is underway. Few companies want extra workers. Many have hiring freezes. Rejections are hard to take.
But it is important to remember that what led to your being unemployed, and what makes re-employment difficult, is not your personal performance, but the characteristics of the system. The failures, to the extent that there are failures, lie in the system and not in you.
I know. I’ve been there.
Lester C. Thurow, a professor of economics and former dean of the Massachusetts Institute of Technology’s Sloan School of Management, is a member of USA TODAY’s board of contributor