US safety net for unemployment torn

Bloomberg

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Rebecca Alvarez says she’s "barely hanging on." Without a job for seven months, the 48-year-old computer-network administrator said she’s stopped dining out, cut back cable-television services and put off paying a photography class bill from her 14-year-old son’s school in Monrovia, California.

She is among more than 4 million Americans who have been looking for work for more than 26 weeks, representing 29 percent of the unemployed, the most since records began in 1948.

Hundreds of thousands of lost jobs in industries such as autos and construction haven’t been replaced with new ones, shrinking payrolls by 6.5 million since the recession began in 2007, Labor Department figures show. The June jobless rate reached 9.5 percent, the highest since 1983. "We are going to have a huge pool of unemployed, second only to the Great Depression," said Allen Sinai, chief economist at Decision Economics in New York. "It will be a big public-policy problem."

The Standard & Poor’s 500 Index has slumped about 4 percent since government figures published July 2 showed a 467,000 drop in June payrolls, more than economists had forecast. Ten-year Treasury yields have fallen, as investors bet the sluggish job market will lead the Federal Reserve to keep interest rates near zero.

President Barack Obama tried to tackle prolonged joblessness in the $787 billion stimulus package Congress passed in February by lengthening and expanding aid to the unemployed.

As many as 650,000 workers may exhaust even their extended benefits within three months, said Maurice Emsellem, policy co-director for the National Employment Law Project, a nonprofit advocacy group headquartered in New York.

That means Obama may need to aim directly at reducing joblessness, said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. Among options: enhanced job training, tax credits for businesses that take on new employees or a temporary cut in payroll taxes.

The U.S. traditionally hasn’t had to deal with long-term joblessness. During the last 30 years, Americans who were thrown out of work took an average 15.8 weeks to find new positions. In June, the average duration of unemployment was 24.5 weeks, the longest since records began in 1948. The number of people collecting unemployment benefits reached a record 6.88 million in the week ended June 27.
While unemployment will peak between 10.5 percent and 11 percent in the U.S., it will remain high and stay above 7 percent, said Mohamed El-Erian, chief executive officer at Pacific Investment Management Co., manager of the world’s largest bond fund.

"The United States right now is in transition," El-Erian said in an interview from Pimco headquarters in Newport Beach, California. "It’s coming out of one regime. It’s on this bumpy and painful journey to what we’ve called here the new normal."

Alan Blinder, the former Fed vice chairman who is now an economics professor at Princeton University, isn’t as pessimistic as El-Erian about the economic outlook. He says he sees the jobless rate peaking at 10 percent or a little higher in the first half of next year, then gradually coming down.

The proportion of unemployed workers who have permanently lost their jobs -- as opposed to those on temporary layoff --reached a record 53.5 percent in June, government figures show.About six people are seeking work for every job opening, the most since the government began keeping such records in 2000. A year ago, the ratio was a little more than two-to-one.

Even the highly educated are finding it tough to get work. Washington resident Alexandra Moller, 34, who holds a law degree and two master’s degrees, has been unemployed since September. She’s searching for a position with the federal government or a nonprofit organization.

The most frustrating part is "the constant refrain that it’s such a hard time to find something," she said. "It adds to a certain resignation that it’s going to take a long time." The surfeit of job seekers is forcing people to lower their salary expectations. Liz Mandel, who lost her job in January as a senior clinical-data manager at a biopharmaceutical company, said she has had to look for positions that pay about $15 less an hour than what she earned before.