ECONOMIC UPDATE: WHERE ARE WE, AND WHAT’S NEXT? Heidi Shierholz Economist, Economic Policy Institute May 5 th, National Conference of the National Association of Planning Councils

WHERE WE ARE NOW

Still need nearly 10 million jobs to get back to full employment

Great Recession was worst recession in 70 years

But this is not the worst recovery

Though we have seen unprecedented public sector losses

Unemployment has improved but its still very high

And much of the improvement in the unemp rate has been from people dropping out

Unemployment duration hasn’t improved much

“Skilled workmen in demand despite vast unemployment” That’s a headline from the Washington Post, March “Technological progress has been so rapid during the depression that welders and other experts, idle since 1929, are outmoded…Unemployment may run into the millions, but as the iron, steel, and metal-working industries improve, a scarcity of skilled workmen is developing.” Popular discourse today too suggests persistent high unemployment is due to workers not having the right skills. In reality, it is due to there not being enough work.

Unemployment up for all groups of workers

High unemployment => low wage growth (Year-over-year growth in nominal average hourly earnings)

High unemployment => falling incomes

High unemployment => rising poverty

On top of four years of deep cuts, states still face large shortfalls

WHERE WE ARE HEADED

Unemployment projections

Unemployment projections by race (2012 circled)

Unemployment Projections by state (For the states where you are from!) USAZCAFLILNYOHOKTXVAWI Source: Authors’ analysis of Moody’s Economy.com projections.

WHAT SHOULD BE DONE

At the National Level: Gov’t has two main tools to boost economy: 1.Monetary policy (alas can’t do much when interest rates are basically zero) 2.Fiscal policy (aka “stimulus”) Priority #1: Fiscal relief to states! Investment in infrastructure Maintain safety net expansion Direct jobs creation in communities hit particularly hard Note: Even large temporary increases in spending won’t change long-run fiscal outlook, but would put millions back to work. [Our long-run debt problems are about rising health care costs, period.]

At the state/local level: Unlike the federal government, state/local governments generally can’t run deficits. So must tax/spend wisely while keeping budget balanced (wisely = minimizing negative effect on economy of budget gaps). To balance the budget when there are gaps, must either increase revenue (i.e. taxes) or decrease spending. Both of these can slow economic growth. Rule of thumb: Because in a period of high unemployment cutting spending generally does more economic damage than raising taxes, it’s preferably economically to maintain spending and raise taxes.

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