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The Distribution of the Burden of Rising Labor Market Problems

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The Great Recession of 2008-2009 and its persistence in labor markets through 2010 has generated a massive increase in joblessness and rising unemployment. Job losses were very unevenly distributed across gender, age, educational attainment, and occupational groups, as well as across family income groups. Males, younger workers (under 30), blue collar workers and clerical workers, those without college degrees, and Black men experienced sharply above average job losses. Low to middle income workers also bore a highly disproportionate share of the economic burden. The labor market outcomes of the recent recession stand in sharp contrast to those of the 2001 recession which some analysts claimed to have resulted in a "democratization" of unemployment with better educated and professional/managerial workers absorbing a higher than normal share of the job losses.

There are a variety of labor market problems experienced by the nation's current workers that go well beyond the official unemployment statistics as bad as they are. For example, underemployment problems reflecting an inability of the employed to obtain desired full-time employment (35 or more hours of work per week) have reached historical proportions in the labor market recession with nine million of the employed encountering such a problem on average during 2010. There are both large losses in weekly hours of work and weekly earnings from such underemployment. High levels of joblessness and lengthening durations of unemployment also have discouraged a growing number of workers (especially the young, less educated, and lower income) from actively looking for work and have influenced some of the unemployed to withdraw from active labor force participation. During the first eight months of this year, there were between 5.5 and 6.0 million persons who wanted a job but were not actively looking. If we add these unemployed, underemployed, and hidden unemployed workers together, we end up with 30 million individuals.

Who are these underutilized workers? Do they come evenly from all income classes in America or are they heavily concentrated in certain income groups? To answer this key question, we divided American workers into seven household income categories, ranging from those with annual incomes below $20,000 at the bottom to those with annual income over $150,000 at the top. For workers in each of the above seven income groups, we estimated the percent of those in the labor force who were unemployed, and the ratio of the number of hidden unemployed to the labor force.

For each of the above three labor market problems, the relative size of the problem fell steadily and steeply as their household incomes increased. The official unemployment rates of workers were at a depression era rate of 26% for the lowest income groups to 9% for those with incomes between $40 and $60 thousand, to a low of between 3 and 4 percent for those in the highest income category. The official unemployment rate of the lowest income group was six times as high as that of the highest income groups.

Similar patterns prevailed among the underemployed and the hidden unemployed. Among employed workers from the lowest income group, 18 of every 100 were underemployed versus only 4 to 5 percent of workers in household with incomes being $60 and $75 thousand and only 2 percent of the employed with family income above $150,000. Underemployment problems were 9 times as high among low income workers as among those from the highest income group. A relative gap of six to one prevailed among the hidden unemployed.

The economic losses during the Great Recession in U.S. labor markets have been disproportionately concentrated among the nation's low and middle income workers. The incidence of each labor market problem between 2007 and 2010 also worsened most among these same income groups. Unlike the prior recession of 2001, the labor market losses were extremely regressive, creating much more economic pain in the lower half of the income distribution than at the top. A future labor market recovery must target more direct assistance to re-employing those workers in the bottom half of the income distribution from young (under 25) to middle aged to older workers.

Andrew Sum is the Director of the Center for Labor Market Studies at Northeastern University and Ishwar Khatiwada, a Senior Research Analyst at the Center.