Four Tidbits About the U.S. Economic Recovery

The Great Recession that began in late 2007 in the United States officially ended in June 2009, but anybody can plainly see that we are still miles from a full recovery. The February unemployment rate of 8.9 percent is considered a major improvement from this point last year, and other indicators suggest that a slow uptick in hiring and business investment may be underway.

Still, it’s hard to ignore just how bad the recession has been, and how much more pain may be in front of us. Here are four tidbits about the recovery. 

The Recovery Has Been Unusually Slow

As the figure below from the Center for Budget and Policy Priorities shows, compared to other major recessions from the past century, the rebound in unemployment has been unusually sclerotic. Moreover, about two in five unemployed people in the current economy have been out of work for more than six months – a very bad sign, since these workers tend to have the most difficult time finding work and experience a wage penalty once they reenter the labor force. Another troubling statistic is that the labor force participation rate remains at its lowest since 1984 – at around 64 percent – suggesting that part of the drop in unemployment is due to workers dropping out of the labor market, at least for now.

Public Sector Jobs May Shrink Even as Private Sector Hiring Picks Up

Most of the additions in new hiring in the economy have been to private sector firms – which have actually been adding jobs over the last year. Meanwhile, the public sector employers (states and localities) have been cutting jobs for 24 straight months, meaning that there are fewer cops on the beat, teachers in the classroom, and sanitation workers collecting the trash.

States simply do not have enough tax revenue to retain workers. Up to now, the federal stimulus had been providing states and localities with extra money to make up for the shortfall, but that money has mainly dried up by now. Congress has made it clear that no further stimulus is forthcoming, meaning that the magnitude of service cuts will increase, unless there is a dramatic reversal in revenue.

States and Localities are at Risk of Bankruptcy

Conventional wisdom is that state and municipal bonds are one of the safest investments because states cannot easily default on their loans. But a looming concern, related to the dire budgetary situation in localities, is that down-on-their-luck cities could end up declaring bankruptcy, leading to an echo of the Greek and Spanish financial crisis that rocked Europe. As the New York Times reported in this week’s magazine, the city of Vallejo, California declared bankruptcy last year. The result was a massive cut in basic services – including firehouses and the police department. The prospect of a large-scale default is still unlikely, but the more realistic scenarios will be a continued contraction of the safety net (described below) and an elimination of public employees (described above). As I have pointed out before, the impact of service cuts falls disproportionately on poor people living in poor cities.

The Safety Net is Under Attack

Many major non-entitlement safety net programs – from rental assistance for disabled adults, to job retraining for laid-off workers, to preschool for poor children are imperiled by current proposals to slash domestic spending in the federal budget by the Republican controlled House of Representatives. The Center for American Progress describes some of the proposals including cutting job training for 8 million adults and youths, cutting college grants for 9.4 million low-income students, and cutting 218,000 low-income children from the Head Start Program.

Some of this is partisan posturing – the GOP House wants to set itself up for a budgetary standoff with the Obama administration, but the stakes are real. Even if a total shutdown of government is avoided, the GOP will require some concessions – and many of these programs are easy targets for cost control.

 

About Brendan Saloner

I am a postdoctoral fellow at the University of Pennsylvania in the Robert Wood Johnson Health and Society Scholars Program. I completed a PhD in health policy at Harvard in 2012. My current research focuses on children's health, public programs, racial/ethnic disparities, and mental health. I am also interested in justice and health care.
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