Who Gets Hurt Most by Higher Unemployment?

February 7th, 2013 at 8:22 pm

The recent CBO report projects real GDP growth to be a measly 1.4% this year, down from a rate closer to 3%, they claim, were it not for all the fiscal cuts baked in the 2013 cake:

CBO estimates that economic growth in 2013 would be roughly 1½ percentage points faster than the agency now projects [i.e., 1.4%] if not for the fiscal tightening.

By Okun’s rule, this suggests unemployment will stick at about 8% this year—about where it is—instead of a number a lot closer to 7% (Okun’s rule turns that 1.5% faster GDP growth into about 0.75 of a percentage point (ppt) lower unemployment).   In fact, the CBO predicts that unemployment rate this year will move from all of 7.9% in the first half of the year to 8% in the second half.   Thanks, dudes.

Actually, we should thank them for the warning—and even R’s are sounding Keynesian (OK, military Keynesianism, but still…) right now.

The point I wanted to make here is that everybody’s unemployment rate ain’t created equal.  If you look at the correlation between the overall jobless rate and that of various subgroups, you’ll find that an increase in ¾’s of a point translates into a much larger increase for minorities or those with lower levels of education, and a lesser increase for say, college educated workers.

The figure below provides a rough idea.  For Latino or African-American job seekers, a 0.75 ppt increase translates into a 1-1.1 ppt increase; for high-school dropouts, it could mean a 1.2 ppt increase.  For college-educated workers, on the other hand, their rate would be expected to go up about half as much.

 

Source: BLS, my calculations

 

You could carry the calculation another important step forward and estimate the real wage losses associated with these unemployment rate increases.  I’m working with some colleagues on this and will have some info soon, but back-of-the-envelope, for a low-wage worker facing the kinds of increases in the higher bars in the figure, we’re probably talking about a 1% real loss in their hourly pay.

So, we’re talking real losses for real folks who really can’t afford it.  And for what?  I’ve yet to hear anything approaching a compelling explanation as to why our political class should be whacking away at our already weak economy.  Like I said, I’m past the point of asking these folks to help improve things, but I guess I’m still crazy enough to ask them to not make them worse.

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5 comments in reply to "Who Gets Hurt Most by Higher Unemployment?"

  1. Tyler Healey says:

    The Gordon Geckos of the world love high poverty because it causes deflation – and if there’s one thing Gordon loves more than making money, it is increases in the value of his money.

    Gordon has a home in every state that doesn’t have an income tax.

    His favorite show is American Greed. He finds it inspiring.

    Gordy chose “I want what I want when I want it” as the quote to go above his picture in his high school yearbook.

    The Gordster championed welfare reform because he didn’t think it was, well, fair that the federal government was giving money to poor people. However, he thinks big oil subsidies are essential.


  2. Misaki says:

    >(Okun’s rule turns that 1.5% faster GDP growth into about 0.75 of a percentage point (ppt) lower unemployment)

    Does not apply when people work less. http://www.cepr.net/index.php/blogs/cepr-blog/hows-that-hopey-changey-work-share-thing-doing

    Similar to many other observed correlations that would not apply to a change in the average hours worked, especially if it happened disproportionately among high-wage workers.

    >And for what? I’ve yet to hear anything approaching a compelling explanation as to why our political class should be whacking away at our already weak economy.

    Reason 1: supporting the cultural assumptions that lead to a lower suicide rate, balanced against higher violence. http://jobcreationplan.
    blogspot.com/2013/01/the-suicide-issue.html

    Reason 2: avoiding government fraud and waste, as exists in Greece. http://online.wsj.com/article/SB10001424127887324329204578269830180438300.html “Stephens: The Conscience of a Radical”


  3. Kevin Rica says:

    Jared,

    Your thinking is out-of-step with the modern Democratic Party. They believe that higher unemployment and lower wages will have at least two major benefits.

    It will raise the incentive for the job creators to create more low-paying jobs for illegal immigrants;

    and —

    low-paid illegal immigrants will produce fruits and vegetables for less. The job-creators will be able reduce prices. (They screw others and pass the savings on to you!!) This will allow unemployed Americans (who are too lazy to work for less) –to get more for their food stamps.


  4. perplexed says:

    -”The point I wanted to make here is that everybody’s unemployment rate ain’t created equal.”

    So what would the alternatives be if anti-trust rules applied to labor & there truly was a market for it. What if it was illegal to just deny 15% of the working population any access to the “labor market?” Are there simply no other alternatives to spreading the cost of the output gap that don’t involve sticking the full cost to a powerless group or has this “easy for most” solution sapped us completely of any creativity in finding an ethical solution?


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