THE BLOG
12/20/2013 01:48 pm ET Updated Feb 19, 2014

From Worse to Awful

The start of the Great Recession in December 2007 marked the beginning of a more virulent form of American capitalism that continues to this day. Despite the unemployment rate falling from 7.8 percent to 7 percent over the past year, the labor market is far from healthy. The unemployment rate has been above 7 percent for 59 consecutive months, the longest span since the Great Depression. But this type of economic dysfunction is neither new nor an accident -- it is a continuation and intensification of policies that began over 4 decades ago.

Since the early 1970s, economic policy has been designed to increase employment insecurity, which depresses income growth by making workers fearful of demanding higher wages. The weakening of labor law, which made it increasingly difficult for workers to unionize and bargain collectively, has been the main culprit. By 1981, Ronald Reagan fired over 10,000 striking air traffic controllers, signaling to private industry that the federal government was now a de facto anti-labor organization. Unsurprisingly, union membership fell from a peak of 29 percent in 1962 to 11 percent today.

Deunionization opened the door for a flood of other changes that caused more insecurity, lower wages, and higher profits. Firms could more easily replace full-time workers with low-wage, part-time employees. The share of the labor force working part-time has risen from a low of 14 percent in 1968 to over 20 percent today. The rise of global competition and trade agreements that made it easier for firms to offshore production made workers fearful of even asking for a raise, or else risk having their job exported.

But as bad as the past few decades have been, things seemed to have changed for the worse since 2007. The old insecure labor market has not disappeared. Rather, these forces have mutated into more effective ways of depressing wages and increasing profits.

The most notable recent change has been the record rise in unemployment duration and the prevalence of long-term unemployment. Since 2007, unemployed workers can now expect to be unemployed three times longer than in the past. Average unemployment duration has tripled since 2007, rising from 13 to 40 weeks. One in three of the unemployed have been out of work for more than half of a year, compared to one in ten prior to 2007. Yet politicians refuse to pass additional stimulus to put people back to work.

The long-term unemployed now experience "duration dependence." The longer you have been out of work, the less likely it is you will find a new job. After being unemployed for 1 month, the probability of finding a job falls from 30 percent to 7 percent, then to 4 percent after 8 months. This means that temporary unemployment, like that caused by a recession, could become long-lasting, creating a permanent underclass of workers dependent on irregular, short-term, informal work causing unimaginable economic insecurity. In spite of this, Republicans and Democrats recently voted to eliminate emergency unemployment insurance benefits, which were specifically designed to cushion the financial blow to the long-term unemployed.

Those fortunate enough to have a job -- 58.6 percent of the population, the lowest level in over 3 decades -- face heightened employment insecurity caused by the spike in part-time employment and the disappearance of good-paying jobs. One out of every five workers now works part time, and, despite the U.S. workforce being better educated and more productive than in the past, the number of good jobs has fallen from 30 percent in 1979 to 25 percent today. Downward mobility is now the new norm.

These forces have caused inflation-adjusted compensation growth -- wages plus benefits -- to stall. Compensation has grown only 0.2 percent per year since 2007, 10 times lower than the 2-3 percent growth in the past.

But the economy continues to grow, if at a slower pace than before. So where does this growth go? Low wage growth usually entails high profits and rapidly rising incomes for those at the top of the income distribution -- and this is exactly what we have seen. Corporate profits as a share of GDP are at an all-time high, doubling since 1980, and skyrocketing 50 percent since the recession started. Of all of the income growth since the start of the recovery in 2009, 93 percent of it has been siphoned off by the richest 1 percent of the population. Trickle-down economics is actually flood-up economics.

Without massive policy intervention, insecurity, long-term unemployment, flat incomes, and rising inequality will linger. This could cause permanent stagnation of economic growth. To prevent a prosperity-less future, it is time we start demanding, and politicians start providing, viable cures to our economic ills.

The passage of local living wage ordinances, most recently in Washington D.C., is a good start. New Deal-style programs, like an employer of last resort, which would be run at a local level with federal funds, could end unemployment and insecurity once and for all by offering stable and useful employment to every able-bodied worker. Cooperative movements, like those in Chicago and Cleveland, could become a targeted recipient of federal money, providing workers not only jobs and stability, but also a real voice in how firms are managed. Labor law could be costlessly amended to reinstate card-check unionization, which would re-empower a crippled union movement.

Money for these programs could be easily raised by more progressive income taxes, a wealth tax, and a financial transactions tax, like that in the EU. The hysteria over the federal budget deficit, which has been shrinking at a record pace for the past two years, serves as political cover for unpopular policy decisions, such as rolling back unemployment insurance.

The funds and ideas to create a new, stable economy are out there. What is lacking is the political will. The ideological and political grip of the elite is so strong that many politicians and workers are under its sway. But there might be a limit to how much economic punishment people can take before they start demanding a humane form of capitalism.