About I-OPEN

I-Open is the architect of a new type of civic infrastructure.

This infrastructure connects entrepreneurs and their ideas to resources and capabilities in established organizations and institutions.

Learn more across these I-Open platforms:
I-Open http://i-open-2.strategy-nets.net
Facebook I-Open http://www.facebook.com/group.php?gid=35942064712&ref=ts
Flickr http://www.flickr.com/photos/iopen/sets/
Friendfeed http://friendfeed.com/iopen
Livestream http://www.livestream.com/iopen/
Posterous http://i-open.posterous.com/
Scribd http://www.scribd.com/I-Open
Slideshare http://www.slideshare.net/IOpen2
Twitter http://twitter.com/iopen2
Vimeo http://www.vimeo.com/user1999383
You Tube http://www.youtube.com/user/IOpen2

Copyright 2010 Betsey Merkel http://www.betseymerkel.extendr.com/ and I-Open http://i-open.org/. Creative Commons 3.0 Attribution-Noncommercial-No Derivative Works. Institute for Open Economic Networks (I-Open) 4415 Euclid Ave 3rd Fl Cleveland, Ohio 44103 USA

Analysis / Elusive Employment / Special Reports / Current Affairs / ISN

The Path of Unemployment in the Great Recession

Unemployment line in memoriam, FDR Memorial site, Washington, DC

The current Great Recession has led to a dramatic rise in unemployment in the US – the highest in the post-World War II era – with rates expected to remain like this for several years to come. Europe has fared better, with work sharing helping to keep unemployment down – an arrangement that could help the US mitigate the acute suffering associated with several more years of the labor market crisis.

By Dean Baker

It has been two-and-a-half years since the recession officially began in the United States. While the economy has been growing for more than a year, unemployment remains near the 10.1 percent peak of October 2009. Few economists predict a rapid decline from its June level of 9.5 percent and, with stimulus being phased down over the next year, it is very plausible that the rate will edge higher in coming months.

The US, unlike most western European countries, is not set up to sustain long periods of high unemployment. Its system of social welfare is very much centered on work. This is most evident with health care. The vast majority of non-elderly people get their health care through employer provided health insurance. Individual policies tend to be very expensive, especially for people with any history of medical problems. When people lose their jobs, they generally lose their health care coverage as well. While there is a public program for low-income families, it doesn’t cover most of the unemployed, and the quality is often quite poor.

The same is true of other forms of public support. The US was never very generous to people who are not working, and it has become less so in the last three decades. That is why the prospect of a prolonged period of high unemployment in the US is likely to mean serious hardship for large numbers of people.

Worse than ever

The unemployment seen in this recession is already as bad as in the worst previous post-war recession, and it is almost certain to linger much longer. In the 1981-82 recession, unemployment in the US peaked at 10.8 percent in December 1982. However, the economy turned sharply upward at the beginning of 1983, and the unemployment rate fell back quickly. By July 1983 the unemployment rate was down to 9.4 percent, and it had fallen to 8.3 percent by the end of the year.

There is little prospect for a similar turnaround in this downturn. While the unemployment rate has edged down slightly since its October peak, most forecasts show the rate remaining nearly constant or just falling modestly over the next year and a half. Most official projections show the unemployment rate remaining well above its normal level until 2015 or 2016.

It is also worth noting that the same level of official unemployment implies a considerably worse labor market situation today than in the early 1980s. This is due to changes in the age composition of the labor force and also a declining coverage rate for the labor force survey used to measure unemployment.

The change in the age composition is fairly straightforward. In the 1981-82 recession, the huge baby boom cohort was mostly in its 20s or early 30s. The youngest were still teenagers. Workers at these ages have few financial and family commitments and therefore tend to change jobs more frequently. As a result, we expect to see higher rates of unemployment among younger workers. By contrast, the baby boomers are now mostly in their late 40s or 50s, ages at which workers very infrequently change jobs. Therefore we should expect a lower unemployment rate at present compared with 30 years ago.

If we look at unemployment by age group, it turns out that for every age cohort the unemployment rate is higher at present than it was at the peak unemployment rates of the 1981-82 recession. This means that on an age-adjusted basis the unemployment rate in this recession has already been much worse than during the recession that had prior claim to being the worst in the post-World War II era.

The aging of the population is not the only issue that affects the measure of unemployment. The coverage rate of the Current Population Survey (CPS), the labor force survey used to measure the unemployment rate, has fallen sharply over the last three decades. In the early 80s more than 95 percent of the population was covered by the survey. In recent years, the coverage rate has slipped to 88 percent. This decline in coverage would not matter if the people who are excluded from the survey are similar to the people who are covered.

However, we have good reason for believing this is not the case. The groups that face the highest unemployment rates (e.g. young African-American men) also have the lowest coverage rate. Using a comparison with Census data from the 2000 Census, my colleague John Schmitt concluded that the fall in coverage rates is likely to lead to an understatement of the unemployment rate of approximately 0.2 percentage points. This means that if we adjust for both age composition and declining coverage rates, the current unemployment rate would be comparable to an 11 percent measured unemployment rate in 1981-82.

Europe: From unemployment to partial employment

While the downturn has led to high and prolonged unemployment in the US, it has not had quite the same effect in Europe. Although the overall unemployment rates are very similar at present, the European average is inflated by the 20 percent unemployment figure for Spain, which adds more than a full percentage point to the EU average. It is also important to remember that the EU started the downturn with an unemployment rate that was two percentage points higher than in the US. This means that the recession led to a much sharper rise in unemployment in the US than in Europe. This is in spite of the fact that Europe has actually seen a sharper decline in GDP than the US.

One of the main reasons for the difference is that several European countries, most notably Germany and the Netherlands, have adopted a policy of work sharing to limit unemployment. The basic logic of work sharing is very simple. Under a standard system of unemployment insurance, workers are paid out benefits only if they are completely unemployed. In effect, the government is paying workers for being unemployed.

Under work-sharing schemes, instead of just paying workers for being completely unemployed, the government pays workers for being partly unemployed. In the standard model used in Germany, if a firm cuts workers hours by 20 percent, then the government covers 60 percent of the lost wages or 12 percent of the total wage. The employer is expected to pick up another 20 percent of the lost wages or four percent of the total wage. The worker is then left with four percent less pay but is working 20 percent less time. Since this likely corresponds to working a four-day week rather than a five-day week, savings on commuting and other work-related expenses may come close to offsetting the cut in pay.

Germany has been able to use this system to keep its unemployment rate from rising at all in the recession. In fact, its unemployment rate is slightly lower today than it was at the start of the recession. The Netherlands, which has also aggressively pursued a work-sharing policy, has seen a modest rise in unemployment, but its unemployment rate was still just 4.1 percent in the most recent data.

The success of Germany and the Netherlands thus far in protecting their workers from unemployment in such a steep downturn is a remarkable step forward in macroeconomic policy. It would be best of course to avoid recessions altogether, but if their impact on employment can be offset to the extent accomplished by these two countries, then it would be an enormous accomplishment.

In the US workers are seeing near double-digit unemployment with the implied loss of income and benefits, as well as the loss of self-esteem and social status that is associated with long-term unemployment. By contrast, workers in Germany and the Netherlands are adjusting to the falloff in demand with shorter workweeks and longer vacations. This is a great model and with luck it will quickly be adopted throughout the EU.

It may take a bit longer to see work sharing catch on in the US. While 15 million are unemployed, none of the people responsible for the recession are in that category. Economic policymakers are not given their jobs based on performance nor do they lose them as a result of bad performance. Therefore, we are likely to see far more suffering in this recession in the US than in Europe as the unemployment rate remains high for several more years.

Dr Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He received his PhD in economics from the University of Michigan.

The views and opinions expressed herein are those of the author only, not the International Relations and Security Network (ISN).

Creative Commons License Logo


From Dean Baker, Co-Director, Center for Economic and Policy Research.

Maps - a set on Flickr

This set documents I-Open network and community building activity from 2003 to 2009 aided by the generous contributions of hundreds of civic entrepreneurs, many of whom reside in Northeast Ohio.

Data driven social network maps strengthen transparency by indicating where and with whom an entrepreneur can connect to access information or resources.

Many of the maps shown here are "experience maps" - non-data driven visualizations that document known flows of information or cycles of community maturation.

Maps such as these may mirror unrealized areas of research, data collection, and discovery in sociality, collaboration and enterprise development.

You can learn more about practices and tools in Open Source Economic Development at I-Open here and here.

Copyright 2010 Betsey Merkel www.betseymerkel.extendr.com/ and I-Open. Creative Commons 3.0 Attribution-Noncommercial-No Derivative Works. Institute for Open Economic Networks (I-Open) 4415 Euclid Ave 3rd Fl Cleveland, Ohio 44103 USA

I-Open Civic Forums Strengthen Entrepreneurship & Accelerate Business Dev in Network Economies

I-Open is a shared knowledge network for civic, business, government, and academic leaders in Open Source Economic Development.

This backgrounder begins with an overview of the value Civic Forums offer to entrepreneurs and local business development, followed by, generally, how I-Open is organized, where it originated from, and who has contributed to it making it what it is today – an educational resource for communities and their regions.

We hope you’ll add your comments here.

The Australian Community Network

The main benefit of this social network is that it helps to breed activity in the community, new connections are made with new people. The network helps to inform customers and also re-connect friends.

The Austcom network has been designed to support rural communities.

The Austcom network is self supporting, always growing and improvements are constant.

What makes the Austcom network valuable is:

1. The networking happens in a geographic community website that already serves many people in many ways.

2. The network is about us and supported by us in our communities.

3. As a not-for-profit community enterprise we are focussed clearly on building strong, sustainable communities from within.

Here are some more tangible benefits...

An example of online and place based community network building from Geoffrey Grigg, a builder of sustainable communities.

Geoffrey is responsible for client support at Austcom, "The Australian Community Network". You can learn more at http://austcom.org.au and at Sustain Magazine http://sustain.org.au where Geoffrey is publisher.

More:
Austcom - The Australian Community Network
http://austcom.org.au is a shared network shaped by a real community. It is a collection of groups who, by their presence, have crafted a working array of tools such as web pages, on line database applications, events notices, news systems, public access areas, email mailing lists and more. Our core precept is that we help build social, economic and environmentally sustainable communities.

Economy of Culture

Storytelling deepens our understanding of social and economic investment in a Quality, Connected Place, one of five areas in the Innovation Framework, a heuristic model of investment in Open Source Economic Development.

In this video interview, Northeast Ohio experience artist Melissa Daubert describes a collection of art pieces she created about her time living and teaching in Zimbabwe as a Peace Corps volunteer.

From Melissa’s story we begin to understand how culture knits together local assets to generate a dynamic hyper-local economy of established mores, the wisdom of traditional thought leaders, knowledge of project design and construction to ease daily living, and simple rules to establish trust and respect in the community.

These are important elements every neighborhood needs to identify and connect local creativity and accelerate the generation of small, widespread collaborative projects for local prosperity.

I-Open - live streaming video powered by Livestream: Teaching Future Minds Technology

Watch live streaming video from iopen at livestream.com

Ted Jordan, President, Funutation Tekademy, is skilled in teaching computer design, technology, robotics, and fun to young adults!

Ted's story (09-26-08) is a pathway of mentoring, education, and work experience that brought him to what he does today - his real passion - teaching young enthusiastic adults at all levels of experience.

An inventor and entrepreneur, Ted tells the story of growing up, a strong family network, excellent education and training, and many diverse experiences in business.

Ted offers advice to parents of children who are passionate about learning computers and robotics.

Programs like Funutation are excellent models for replication in every community and school to attract and connect with young minds building a future workforce that is progressive and creative.

Learn about Funutation Tekademy http://www.funutation.com/

Learn from the wisdom of civic leaders across these I-Open communities:
Copyright 2011 Betsey Merkel and I-Open. Creative Commons 3.0 Attribution-Noncommercial-No Derivative Works. Institute for Open Economic Networks (I-Open) 2563 Kingston Road Cleveland OH 44118 Phone: 216-220-0172 Web: http://i-open.posterous.com/

Ted Jordan, President, Funutation Tekademy, Interview 09-26-08 Transcription

Teaching Future Minds Technology
Ted Jordan, President, Funutation Tekademy

Ted's story is a pathway of mentoring, education, and work experience that brought him to what he does today - his real passion - teaching young enthusiastic adults at all levels of experience.

Learn about Funutation Tekademy http://www.funutation.com/

Learn from the wisdom of civic leaders across these I-Open communities:

I-Open http://i-open-2.strategy-nets.net
Facebook I-Open http://www.facebook.com/group.php?gid=35942064712&ref=ts
Facebook The Institute for Open Economic Networks (I-Open) http://www.facebook.com/group.php?gid=35942064712&ref=ts
Flickr http://www.flickr.com/photos/iopen/sets/72157623351094216/
Friendfeed http://friendfeed.com/iopen
Livestream http://www.livestream.com/iopen
Posterous http://i-open.posterous.com/
Scribd http://www.scribd.com/I-Open
Slideshare http://www.slideshare.net/IOpen2
Twitter http://twitter.com/iopen2
Vimeo http://www.vimeo.com/user1999383
You Tube http://www.youtube.com/user/IOpen2

Copyright 2010 Betsey Merkel http://www.betseymerkel.extendr.com/ and I-Open http://i-open.org/. Creative Commons 3.0 Attribution-Noncommercial-No Derivative Works. Institute for Open Economic Networks (I-Open) 4415 Euclid Ave Suite 301 Cleveland, Ohio 44103 USA