Millennials Face Second Age of Underemployment
(Bloomberg Opinion) -- In a matter of weeks, the economic hit from the coronavirus has wiped out a decade’s worth of employment gains. On Thursday, a report showed U.S. jobless claims rose by another 4.4 million, bringing the five-week total to more than 26 million. That’s the steepest downturn for the American labor market since the Great Depression. More troubling for any long-term recovery, however, may be those who keep their jobs but watch their careers stall. Here’s where a lesson from 2008 might be useful.
For many millennials, the Great Recession wasn’t a crisis of unemployment so much as job stagnation and underemployment – putting in fewer hours than desired, or not tapping one’s full range of skills and productivity. I lived my own version of this, having started my first real job a month after the collapse of Lehman Brothers Holdings Inc. Grateful simply to be employed, I looked past the unglamorous task of writing earnings headlines from press releases, which are now cranked out by algorithms. I was bringing in a mid-five-figure salary and felt like a millionaire.
My gratitude slowly calcified into frustration as I found myself stuck at the same desk for four years. I wasn’t alone. For every story like mine there was a sales representative too discouraged to apply for that regional-manager role, a part-time retail clerk who couldn’t get a regular weekday shift, or even that sorry banking analyst who couldn’t progress beyond plugging data into Excel. All this has a cost: While the U.S. shed more than 30 million jobs and $10 trillion in household wealth during the financial crisis, the pile of earnings lost to underemployment reached $148 billion in the final three months of 2009, by some estimates.
The impact from the coronavirus will be even worse. The International Labour Organization expects 195 million full-time job losses globally, and forecasts a “significant rise” in underemployment. As frustrating as it may be for white-collar professionals to get stuck, the hardest hit will include low-wage workers and the less-educated, who never really found their feet after 2008. That fractured bedrock means we're even more vulnerable going into the Covid-19 downturn than we were just over a decade ago.
This might seem like a brisk turn of events. As recently as February, the U.S. recorded its lowest unemployment rate in half a century. Dig one level deeper, though, and you’ll see why that 3.5% doesn’t tell the full story. A more holistic gauge of labor-market health may be the so-called U-6 category, which includes those who aren’t working but indicate that they want a job, as well as those who want full-time work but have to settle for fewer hours. Even in February, that figure was double the official level – at 7%.
If there’s one thing to watch, it’s the gap between these two numbers, says Torsten Slok, chief economist at Deutsche Bank Securities. That could indicate the strength of any recovery. Keep in mind, though, even the U-6 category doesn't capture job stagnation among the fully employed.
The idea that underemployment is underappreciated isn’t new. In 2019, Dartmouth College professor David Blanchflower published the book, “Not Working: Where Have All the Good Jobs Gone?” He uses the U.S. and U.K. labor forces to illustrate the puzzle of minimal wage growth and record low unemployment. Economics 101 tells us it should be just the opposite — a tight job market should increase pay checks. The catch, he says, is underemployment.
Consider Hank, the part-time worker who’s too downbeat to apply to a full-time gig. He flicks on the news and sees encouraging headlines about the job market. Stirred to dust off his resume, he feels lucky to land an offer relatively quickly. But because he’s been operating at half-speed for so long, Hank has very little bargaining power when it comes to salary negotiations. So while it’s heartening that he’s been added to the workforce, Hank’s not contributing much to higher average wages.
Other research shows just how pernicious working below potential can be. In 2014, Tim Slack of Louisiana State University and Leif Jensen of Pennsylvania State University pointed out that underemployment persisted long after the recovery from the global financial crisis: After averaging 15.5% from 2002 to 2008, the rate increased to an average of 22.4% from 2009 to 2012. It’s entirely possible that we see a relatively quick rebound in unemployment once the coronavirus subsides: Deutsche Bank expects the figure to spike to 12% in the second quarter and roughly halve by the end of the year. Underemployment, however, could haunt the labor market for years to come.
The knee-jerk policy response has been to ramp up unemployment benefits, adding $600 to the weekly amount given by states, at least temporarily. Similar measures have been effective in the past: Every dollar of spending on the extension of such aid produced $1.61 of economic activity in the first quarter of 2009, according to the Brookings Institution. One watershed component of the U.S.’s coronavirus relief bill was including coverage for part-time and gig-economy workers. The latter could equate to more than 25 million Americans, if not more.
Yet unemployment offices around the country are so overwhelmed with requests – and beset by ancient technology – that there’s little time, money or political will to devote resources toward opening up more opportunities for people who’ve already got jobs. Multiple states are quickly running out of funds. In Connecticut, the 40-year old computer system that processes unemployment benefits can’t handle four-digit payments: Adding the supplemental $600 will push the highest eligible payout to $1,249, the Wall Street Journal noted.
For the unemployed, the answer is bigger stimulus checks. The $1,200 handout many Americans will receive look generous at first; if you consider a median weekly wage of roughly $900, however, that outlay buys little more than a week or two for many households, Slok notes. For the underemployed, who have the benefit of time, a simple solution would be to make job-search expenses tax deductible again – a measure that expired with the passage of the Trump administration tax cuts in 2017.
There are many eulogies floating around for millennials these days. Now sandwiched between two economic calamities, we’ve racked up a lot of debt, saved very little and flooded into informal jobs with few worker protections, such as paid sick leave and retirement benefits. The Atlantic is calling us the “lost generation,” while the Journal has documented the effects of “recession depression.”
By accident of birth, I had access to an education that’s opened doors — and I've certainly managed to find my way. But even with this golden passport, it took me several years and moving across continents to get where I wanted. Millions of other Americans aren’t so lucky.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Rachel Rosenthal is an editor with Bloomberg Opinion. Previously, she was a markets reporter and editor at the Wall Street Journal in Hong Kong.
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