Certain Habits

Several days ago, Daniel Hamermesh made an observation about our current recession I hadn’t seen before:

The answer is that the welfare effect of unemployment depends on its duration. Society is worse off at 10 percent unemployment if that figure is concentrated on a small number of long-term unemployed than if it’s spread more evenly across the labor force. A few weeks of unemployment don’t exhaust savings and don’t lead to great depreciation of skills. A year of unemployment can do both. By this important criterion, this recession has had the biggest negative impact since the Great Depression.

This puts the complaints about the so-called “man-cession” in perspective. (The Financial Times reported in April that 80% of jobs lost in the recession had been held by men, despite their being little more than half of the workforce). Is there a long-term employment shift underway that will lock in, perhaps for a generation, a higher level of structural unemployment? If it does, should we care? Maybe not. Steve Horwitz notices how much better off we are today than 30 years ago:

Let me repeat that: over 30% of US households in 2006 earned above $75K compared to under 20% in 1980. Over the same period, the percentage of US households earning under $35K fell from 42.8% to 36.7%. Fewer households are poor, fewer are middle class, and a hunk more are above $75K. (And in case you were wondering, those general trends hold for black and hispanic households too — with the percentage of black households under $35K falling by 10.9 percentage points and the number above $75K increasing by 8.9 percentage points, for example.) Throw on top of this the fact that most everything people buy costs less in real terms and you have a recipe for increasing wealth across the board. Not bad for what so many people claim is 30 years of stagnation.

Asked to choose less poverty at a cost of higher volatility and income inequality OR more poverty but lower overall inequality, I’ll choose less poverty every time. Wouldn’t you?