Costs of unemployment

Yeah, pretty dull title.  But I wanted to reflect on the casualties of the prevalent idea that our major economic problem is managing a large government debt, when in fact the problem is lack of growth and jobs.  In Britain, employment has not collapsed as one would expect in a recession. If official count is to be believed, there are 500,000 more people in jobs than at the depth of the recession.

Whether this is entirely welcome news is another matter.  If we really need half a million more people to produce the same amount of goods and services as we did five years ago, then there has been a dramatic fall in productivity.  One of the (few) arguments for economic downturns is that it shakes out inefficient producers, leaving the market to the Darwinian survivor companies more suited to the modern world.  But perhaps we link jobs to output too readily. Let me explain where my eccentric logic leads me.

It is conventional to consider the costs of unemployment as predominantly economic.  First of all, someone who is not working loses the income that their family needs to meet their needs: they usually suffer a dramatic fall in living standards.  This is reflected nationally.  Losing your job means you do not contribute to the total of goods and services that we call the Gross Domestic Product (GDP).  As a result, high unemployment makes us a poorer country.  It’s also widely recognised that an unemployed person will be a burden on the national exchequer, because they pay no income tax (alert – they pay plenty of other taxes like VAT) and receive welfare benefits.  This causes the national budget to go into deficit in recessions.

However, the debate generally ends there, when there is much more to be said.  Being unemployed is usually a miserable experience, because you lose a sense of identity.  When you meet someone at a party or a pub or an internet date, the first question tends to be “what do you do ?”.  Any answer that does not feature paid employment (“I knit a lot”, “I look after the kids”, I’m very busy in a community group”)  marks you down.  You only have to look at English surnames – Mason, Taylor, Forester, Fletcher, Smith – to know how much occupation defines meaning.

But it isn’t just  some flaky sense of identity that is lost, though that will make people feel valueless and without dignity.  Unemployment has real and enduring effects on well-being.  The New York Times reports a paper by the economists Daniel Sullivan and Till von Wachter which estimates a 50 to 100 percent increase in death rates for older male workers in the years immediately following a job loss, if they previously had been consistently employed. This higher mortality rate implies that a male worker displaced in midcareer can expect to live about one and a half years less than a worker who keeps his job.

Joblessness is also associated with serious illness. Studies have found strong links between unemployment and cancer, with unemployed men facing a 25 percent higher risk of dying of the disease, though we don’t quite know why. Similarly higher risks have been found for heart disease and psychiatric problems.  And in general, every 3 percent increase in unemployment is associated with an almost 5 percent increase in suicides and self-inflicted injuries, according to the WHO.

The physical and psychological consequences of unemployment are significant enough to affect family members. The economists Kerwin Charles and Melvin Stephens recently found an 18 percent increase in the probability of divorce following a husband’s job loss and 13 percent after a wife’s. Unemployment of parents also has a negative impact on achievement of their children. In the long run, children whose fathers lose a job when they are kids have reduced earnings as adults — about 9 percent lower annually than children whose fathers do not experience unemployment.  And you don’t even have to be jobless to be damaged by recession.  Lisa Kahn from Yale University showed that graduates who leave college in an economic downturn find that their lifetime earnings – not just when they graduate, all their working lives – are lower than those who entered the workforce in more prosperous days.

The idea that people who suffer unemployment are ‘shirkers’ who prefer to stay in bed rather than take up available jobs was always laughable.  Who would volunteer for a higher risk of divorce, poorer kids, earlier death and more cancer ?  But when you get an appreciation of the real costs, you get angry rather than resigned at those who peddle that poisonous view.

A couple of final points.  Firstly, this is affecting young people much worse than those who are sheltering in the workforce. “If this is a terrible time to be young in America, with its 17% unemployment rate amongst those under 25, it’s a nightmare in Italy (28%), Ireland (30%) or Spain, where it’s 43%” (Krugman).  And, point two, all this is avoidable.  We have known since the publication of Keynes’ General Theory in 1936 what causes slumps and how we can cure systemic unemployment; and thoughtful and determined policy measures can deal with other sorts – as it affects the disabled, unskilled or young .  And even if we didn’t, we could find better things for people to do than ask people to sit in front of the Jeremy Kyle Show and be the butt of George Osborne’s insults.

Footnote: “Anyone who is willing to work and is serious about it will certainly find a job.  Only you must not go to the man who tells you this, for he has no job to offer and doesn’t know anyone who knows of a vacancy.  This is exactly the reason he gives you such generous advice, out of brotherly love, and to demonstrate how little he knows of the world.” (Treasure of the Sierra Madre, B. Traven, 1927)



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