What's Up With Unemployment?

What's Up With Unemployment?

As it turns out, employment rates are getting better. And that’s great.

The U.S. Department of Labor announced last week that the jobless rate fell to 8.3%, the lowest rate in three years! Hooray!

Or ... ahem.

As Bloomberg points out, those stats may be a little deceiving, because while the unemployment rate is down, fewer people are looking for work; the participation rate, or the number of people who are either employed or are actively looking, is at its lowest point in 29 years. In other words, many people have given up the search.

But let's take the good news for what it is: good. Now let's assess where, in the broad scheme of things, the recent numbers leave us today and in the future.

Even if the economy and employment are both improving, scars remain. A new article from the Wall Street Journal speculates on some of the long-reaching impacts that the past few shaky years may have on our economy—and psyche—for years and even generations to come.

Here’s what they’re worried about:

  • A new underclass of “semipermanently unemployed workers”: The longer people are out of work, the harder it is for them to get jobs. And yet, 5.6 million Americans have been unemployed for six months, and 3.9 million for a year or more. Even if the overall numbers are improving, those people will still have a tough time jumping back into the labor force.
  • The U.S. has lost its competitive edge: The job market is less flexible than it used to be; Americans have been moving less frequently and changing jobs less often. Given the rise of China and the Middle East, the rest of the world may just be catching up to our technological and educational advantage. According to The Wall Street Journal article and Harvard economist Lawrence Katz, the recent recession didn’t originate these trends but made them even worse. But, regardless, it will still be tough going for the economy and employment market to reclaim its former glory.
  • Much of the job growth is in fields looking for low-wage labor: Many of the new jobs in the recent upturn are in industries like health care and hospitality, which generally employ many people with lower skill levels. Although these new jobs certainly help, it doesn’t do much for the middle-class jobs that have been cut in sectors like manufacturing and construction.
  • The personal scars will last a long time, too: People who become unemployed when unemployment is low suffer a serious blow … but workers who lose their jobs when unemployment is high lose twice as much money. According to a recent study, people who lose their jobs when unemployment is above 8% lose 2.8 years’ worth of their old wages. So, even if the market has started to pick up, many people’s individual situations have taken a serious hit. Here’s more on consumer spending and how it impacts the economy.
All the same, scars or no, we'll take "best unemployment rate in three years" over "doomed forever" any day.

So, What Is There to Do About It?

Things are definitely still tough and the job market is not truly back to normal, but we're turning our faces hopefully toward the promise of more action on the part of the government to stimulate jobs. In the meantime, we're making sure our portfolios are appropriately diversified. We're not pulling out of the stock market, by any means—just being smart about how much risk we take on.

On a personal level, we’d like to wave a magic wand to fix the economy and eliminate the long-term scars. But in truth, we can only control our own reaction to the situation. Is it a brave new world? Sure is. Is there anything you can do about it? Sure can.

First and foremost, protect yourself. Your best defense against uncertainty is to have a safety net. We’ve said it before and we’ll almost certainly say it in the future, but an emergency fund is the best way to be stalwart against the unforeseen. We normally advise people to keep at least six to nine months of living expenses in an interest-bearing savings account … but if you’re concerned about job instability or your own financial future, you can save as much as a year’s worth.

Although unemployment comes with many unexpected challenges, like being forced to delay motherhood or unwittingly losing your social connections, you can protect yourself by thinking ahead. We’re not saying it’s optimal—many workers in this economy are, for example, choosing to sacrifice employee benefits in order to hang on to their jobs—but we’re taking this as a good time to regroup and think about where we want to go in our careers.

For career advice ranging from interview tips to easy ways to make money on the side, check out our career center.

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