The Long Term Damage of Economic Downturns

Yves here. This short but important Angry Bear post focuses on the fact that many people take serious hits in economic downdrafts and never come close to recovering. One group is those just starting their careers, particularly if as happens so often now, they borrowed to pay for their degree. Our UserFriendly, who got a STEM degree, had the bad fortune to graduate in 2008. After the financial crisis, unemployment was greater among new college graduates than recent high school grads. To make matters even worse, in 2009, when the slow economic recovery was taking hold, employers tended to favor 2009 graduates over 2008 one who’d been un/underemployed or forced to take work that didn’t make use of their college training.

Another form of ongoing destruction which becomes more acute in times of economic distress is the loss of good factory jobs. Here, the damage is often to entire communities. People who have built homes and lives not only are reluctant to uproot for personal reasons but they lack the connections and the financial resource to make a go elsewhere. The Wall Street Journal had an excellent 2017 report on how more and more people were stuck in rural America; we wrote it up then. It focuses on the long-tern decline of a Michigan town, but also includes how individuals took big set backs in the early 2000s or the financial crisis. I suggest reading the entire piece. From its opening section:

The Wall Street Journal published an excellent, sympathetic, in-depth article on why residents of rural America who want to leave to get better jobs as their local economies wither can’t get out. Some will no doubt seem obvious to readers while I suspect others will be surprises.

Even though mobility has fallen generally in the US, it has decreased more in rural areas than urban ones. The number of people in rural counties who moved across county lines in 2015 was 4.1% compared to 7.7% in the late 1970s. This is despite the fact that rising poverty and other social stresses mean even more people want to get out than ever. See the geographic distribution:

But “getting out” means moving to a city, even if just a mid-sized one. And many small town denizens find it harder than ever to make the jump. The Wall Street Journal story focuses on West Branch, Michigan, a town with barely over 2000 people hit hard by the closure of manufacturers and changes in farming. But even with its economic distress, hardly anyone leaves. The county, with about 21,000 residents, loses only one person per 1,000 each year. The photos convey that the members of the town live in a beautiful area and care about the community. This shot is from a resident’s patio. Notice the carefully tended lawn and the tidy houses across the lake:

While economic barriers loom large, social and cultural factors also play a big role.

The most obvious hurdle is high housing costs. The gap between rural and urban housing prices has become a yawning chasm. While professionals could make the transition, the article points out that less skilled workers can’t. A janitor who left Alabama, Mississippi or South Carolina for the New York City metro area would wind up paying 52% of his paycheck on housing.

The Covid crisis has turned the question of where safety for lower income workers lies on its head now that many big cities are suffering. Those taking hits include small business owners and workers in city centers, tourism, hospitality, and live entertainment. Our post on job losses in New York City indicated it will be a long hard slog for them.

By Kevin Melvin. Originally published at Angry Bear

Chairman Powell, Secretary Yellen, and President Biden have recently spoken about the long term consequences for many of economic downturns. More should, more often. The Media should recognize how important this is; ask the question whenever it needs to be asked. The Congress should put this front and center in any and all discussions about economic policy.

Why? Because millions of Americans never recovered from 1979-1980. Millions more never recovered from the 2001. More than from either of those never recovered from the recession of 2008. Who didn’t recover? Those who just gotten their first decent job, just taken out a mortgage, just gotten married and started a family, those who had just experienced a family medical emergency, … The types of folks that the likes of Mitch McConnell couldn’t be bothered to bring a bill to the floor for; those.

As they say — say way too damned often — through no fault of their own. It usually isn’t. Almost never is. But it sure does keep them in their place and at hand just in case they might be needed by the economy at some point in the future and no one else is available; and they don’t fall so completely as to no longer be useful. For more on this, visit your local homeless encampment.

Before, other, homelessness, the consequences often include, not in any particular order; bankruptcy, the broken family, divorce, … Seems, when you are knocked down, it’s hard to get back up. Hard enough the first time. Can’t all succeed, can we?

Were you there in 1980 to see the family guy getting caught trying to steal the bag of groceries? When the Market called the cops and had him arrested? When all the engineers quietly lost their jobs, their careers, in 2001? As Hazel sang so eloquently “And they ain’t coming back.”

They didn’t. And too many of them wound up divorced, working at the market, … doing anything but engineering, or whatever other career they might have had before.

If you were at Al’s Big Burger at lunch time one day in the spring of 2007 and overheard the black man with a really good job with PG&E explain to his co-workers the offer Wells Fargo made him on the equity in his house, you knew then and there the stuff was about to hit the fan; you started looking for a place to scream. Fortunately, Angry Bear was at hand.

For the survivors of 1979-80, and 2001, those who were still marveling at their survival, 2008 made those two recessions look like a walk in the park. After 2008, there was no equity to use to get back up with.

‘Tis a sorry-arsed excuse Mitch, republicans, whatever one you come up with next.

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  1. ambrit

    Another aspect of this is the increasing focus on credentials as gatekeeping tools to acquire decent wages.
    I can remember when a firm would hire you at rock bottom wages, but train you in house. When you learned the job properly, you got raises. You were more productive for the firm. Now, most concerns expect the job applicant to have paid for the training themselves.
    Yet another malicious aspect of this is the tying of wage rises to credentialization, even when the worker is already performing the job adequately. This is the trap our middle girl is wrestling with now. She is doing a job, and gets consistently positive performance reviews. She is earning twice the present day minimum wage. When she gets her education degree, she will get twice her present salary, for doing the same job. Working days, and attending online college in the evenings and weekends, she tells us that she is told that she should get her degree in six years. So, she gets short changed for six years. Add to that the fact that she has no job security, even were she to have the degree. Oh, and did I mention, minimal benefits since she isn’t degreed?
    The concept of Meritocracy has lost any legitimacy it ever had. Respect for Authority is going quickly now. Soon enough, the Rule of Law will go by the wayside.
    The society is almost beyond reform. When the crash comes…..we will all be drowned in Grover’s Bathtub.

    1. Laura in So Cal

      This is even true once you have a bachelor’s degree. I’m in my mid-50’s with a bachelor’s degree, an extension certificate in a particular area and 25 years of varied experience in my field. If I look at new job listings at my company for my position , they want either a Masters degree or a CPA/CMA certification as well…neither of which is really required for the job. If I wanted to get promoted or go into management, the company would probably pay for my education costs, but not for my time to do so. I’ve got my job, elderly parents that I help, and a teenage son. I don’t have time for that.

    2. blatanville

      for 5 years before the 2008 crash, I worked for a high-end travel company (per-person price, for a 5-day, 4-night walking trip in Europe: ~US$5000).
      I was in “fulfillment,” meaning I printed and shipped documents and other material to people who’d booked a trip with the company. The job posting “required” a post-secondary degree. I had no degree, but some university, and I my roommate already worked for the company and recommended me.
      The telephone sales/customer service staff jobs, likewise, as posted, required a post-secondary degree.
      There was nothing in either my job, or the sales positions that would require something learned at a post-secondary institution to DO the job, but it served well to pre-select/weed out for “people like us” (the white, upper-or-at-least-middle class people who founded the company and ran it.)

      1. Massinissa

        This kind of BS might, MIGHT be acceptable in a country where higher education is guaranteed. But post-grad degrees require between 40k to 100k to get. These companies wanting only grad students are basically saying “We only accept wage slaves who have far too much debt to actually quit their jobs.”

        I can’t imagine how people don’t see any of this. How can people be like, “Oh, first you get a car loan, then a loan for a college degree and a graduate degree, then you have an incredibly expensive wedding which probably also requires a loan, then you get a loan for a house, and then you have two kids (who also might require loans to get considering you have to pay the hospital 10k after birth)”. To exist in this country one needs tens of thousands in debt before getting to age 30, and then the PTB starts complaining about how the birth rate is going down, as they have been for about two decades now? Give me a break… This country may as well be a Franz Kafka story, but with the government bureaucracy replaced by the bureaucracy of debt and finance.

  2. PlutoniumKun

    One of the less commented upon aspects that has made Germany and other northern European countries so successful in the long run is that they’ve built in sensible automatic countercyclical policies designed specifically to prevent downturns damaging their production base. Individual companies also use tools like short term working or furloughing rather than redundancies during downturns in order to protect their skill base. This is a key reason why they’ve managed to protect their industrial capacity in the face of Asian competition while others have faltered. In effect, they can ratchet up significantly faster when an upturn comes around.

    This was clearly visible in Ireland in its recovery after the last crash. While countries like Germany and Sweden invested heavily in public housing during the downturn to protect their construction industry capacity (again, these were largely built-in stabilisers, not necessarily direct government decisions), in Ireland austerity meant that an entire generation of engineers and tradespeople was exported, and contractors simply sold off all their plant to generate income. The result was that when the upturn arrived, there was zero capacity within the construction industry. Back around 2015 I heard numerous stories of developers with cash to spend and sites available for development who were simply unable to get anyone to reply to their tenders. So it took additional years to bring new houses and offices into the supply lines. This of course led to a huge rise in rents which potentially set a ceiling on the recovery. This of course is in addition to the human cost of unwilling emigration.

    1. ambrit

      Of course now, add in the portion of the working age population that does not have sufficient resources to move away. As in the American hinterlands, that’s where endemic poverty builds. Let us not focus on just social mobility. Actual, physical mobility is also a factor in the health of the nation. Here in America, the distances between workers and new jobs can be large. America is a big place.
      Not snark, but, how does a nation like Eire or the UK compare, size wise?

      1. Eustache de Saint Pierre

        Interesting question so I had a look – the size of the whole of the British Isles including Ireland is 121,684 sq miles, which roughly equates to that of New Mexico at 121,590.

        1. WobblyTelomeres

          And about as sparsely populated from what I can tell (have been watching a lot of BBC crime dramas lately). Oxford in particular. Bodies everywhere. Is anyone left?

          1. ambrit

            Good question. Then, (I speak from second hand experience here,) there is the factor of the depredations of the Masonic Murder Cults. Particularly strong in Oxford.

        2. ambrit

          Ah. I’ve visited New Mexico. That’s enlightening.
          Also, I guess I should have thought about the affordability of lodging when workers do first make a move. Then again, this would also have to factor in expectations of what constitutes a minimum standard of living. Somehow, I can’t imagine living in a homeless camp, like the shantytown pictured in Paris a few days ago on the site, and working in an office setting.
          Upper, even middle class markers can be difficult to maintain amidst squalor.

      2. drumlin woodchuckles

        A policy focused on making every place nice enough that most people in every place will not feel driven to try moving would be a nice thing to have.

        That tidy man on his tidy lawn with tidy houses in the background looks like a good place to try Survival In Place if the rest of the country sags down to a Fall Of The Soviet Union level. Maybe policy should focus on making that town a nice place worth staying and living in.

  3. flora

    The American Dream is almost washed away. The chances of success depend as much on structural conditions as on personal effort.

    “Underlying this belief [in the American Dream} is the assumption of abundant opportunity and meritocracy. Arriving immigrants often believe they have come to a land of opportunity, with a level playing field allowing for advancement and success. Those who fail to do so tend to blame themselves.

    “Yet according to recent research, the United States has far less mobility and equality of opportunity today than the European Union or other OECD countries.”

    1. drumlin woodchuckles

      ” Equal Opportunity of Upward Mobility” seems like a cynical diversion away from the condition of the Lower Class Majority. In fact, the EO of UM concept requires an exploited oppressed and persecuted Lower Class Majority to scare people into accepting the personal solution of mobilizing their own personal self upward out of it.

      The Lower Class itself should be enwealthed enough to have an okay life of modest comfort. Pay the Lower Class first. And pay them right where they are, if that’s where they want to stay.

  4. David

    In the UK, this has been a theme of every economic downturn of the last forty years, from that engineered by Thatcher in 1979 onwards. It wasn’t just jobs: it was entire industries that vanished, and the lesson of these episodes is that once industries are gone they don’t come back. British economic history over the last forty years is a punctuated by a series of gravestones: car manufacturing, shipbuilding, aerospace, consumer electronics and many others. The problem is that for the whole of this time, economic orthodoxy has assumed that when a market opportunity exists, someone will arise to fill it. Costs of entry into the market are assumed to be nil or negligible . This is insane, of course, and utterly removed from reality, but the alternative would be to admit that counter-cyclical industrial policy is in fact necessary.

  5. Bob Hertz

    This kind of population shift is never easy. After World War I, immigration was restricted and soon there were labor shortages in northern factories. This enabled the Great Migration of millions of black workers to a better life.

    Yves, thanks for the link to your 2017 long post on this issue. Your comments were terrific.

    Finally, a quick comment to ambrit about your daughter’s struggle. I feel badly for her. I would note that her employer is frankly rather stupid to double her salary just for getting a degree, if she is doing her job just fine as is. I know that this happens in government work a lot, but smart firms in the private sector do not do this as much.

    1. ambrit

      Thanks. I also wonder at the tunnel blindness displayed by that salary ‘system.’
      I have observed before in my own work life that a credential is usually mistaken for the actual skill involved. It is almost a display of laziness. At some level of management, someone should be tasked with an accurate measurement of employees’ skills sets. To put it all on a piece of paper is an evasion of responsibility. Further more, what I am seeing is that the “education” syllabus is bloated with unnecessary items that are considered “necessary” by a faceless social engineering team. Hence, the ravages of ‘Woke Culture.’
      This being an “education system,” I see the doubling effect as in the nature of a big incentive ‘bonus’ process. Thus, I can describe the dynamic here as “conform and prosper.” Additionally, I can see that “teaching to the test” requires the narrowing of the process to simple basic self limitation in the thinking process for both students and teachers alike.
      Social conditioning in all it’s glory.

    2. tegnost

      “smart firms in the private sector do not do this as much.”
      No that’s true. In the current framework smart biz only hires already credentialed people, preferably ivies, and does not train. Training indeed is something nowadays that should be paid for by uncle gov. I suppose in some peoples opinion that destabilizing the workforce and makes them more precarious and thusly more malleable to the machinations of capital,(…have to be able to hold their feet to the fire! Harrumph…) not to be confused with machinations that actually produce anything other than debts of course…

    3. Massinissa

      “his enabled the Great Migration of millions of black workers to a better life.”

      Not so sure it was for a ‘better life’, might have been just ‘a life’. May have been linked at NC, but read an article awhile back arguing that the main impetus for the Great Migration was a spree of major lynching’s. And by spree, I mean over the course of a few decades. Alot left because they were effectively chased out. It’s not some kind of ‘success story’ where everyone ended up better off.

  6. Randall Flagg

    Should it then be any surprise to the current duopoly in DC when in the next presidential election a “populist “ candidate comes out of nowhere to lead a ticket for election to be President?

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