The awful consequences of austerity
TheStar.com – business/economy – “Short of death or a debilitating terminal disease, long-term unemployment is about the worst thing that can happen to you in the modern world.”
Apr 26 2013. By: David Olive
“There’s a quiet humanitarian disaster happening right under our noses.” –Felix Salmon, Reuters economic commentator, April 23
With our persistent high levels of long-term unemployment, Canada is at risk of creating a new permanent underclass. The world’s economic policymaking elite, Ottawa’s included, hasn’t grasped that its enslavement to the “austerity chic” of severe cutbacks in government’s contribution to the economy is retarding the recovery it claims to be promoting. It’s like watching a grainy newsreel of Herbert Hoover’s lectures on the paramount virtue of balanced budgets, while banks, farms and barber shops go bust and the jobless rate soars above 30 per cent.
Long-term unemployment is an affliction for more than a quarter million Canadians who have been out of work for longer than 27 weeks. A great many of these 250,000-plus Canadians have spouses, and children and elderly parents to care for. So the total number of Canadians suffering the hardship of long-term unemployment is far higher than a quarter-million people.
It’s worth hearing Megan McArdle, a conservative U.S. economics and political commentator, on the spectre of human wreckage we’re talking about:
“Short of death or a debilitating terminal disease, long-term unemployment is about the worst thing that can happen to you in the modern world. It’s economically awful, socially terrible, and a horrifying blow to your self-esteem and happiness. It cuts you off from the mass of your peers and puts stress on your family, making it likely that further awful things, like divorce and suicide, will be in your near future.”
What’s at stake?
The skills of Canadians out of work for long duration atrophy. That weakens the productivity and innovative capacity of our entire economy. Fact is, the average duration of unemployment for all jobless Canadians was a miserably long 20.2 weeks last year – the second-worst rate since 1999.
True, Canada created an impressive 900,000 jobs between August 2009, the nadir of the Great Recession, and February 2013. But Angella MacEwan, a senior economist at the Canadian Labour Congress, asserts that more than 60 per cent of those jobs have been temp work.
One can argue about MacEwan’s number, which is not easily defined. But there’s no argument that temp jobs, now a worry at the Bank of Canada (see Page 21), are far too large portion of total employment. Temp jobs pay poorly and provide few or no benefits. A despairing part of the temp worker’s life is long income-deprived gaps between temp gigs.
The burgeoning temp-worker, or “underemployed,” population has been suppressing wage gains across the workforce. The latest Statscan Labour Force Survey reports that real (after-inflation) hourly wages for all workers have increased by a negligible 20 cents in the past three years, or a miserly 0.3 per cent per a year.
The current jobless rate of 7.2 per cent is higher than it should be at this advanced stage in a recovery. MacEwan points to the Bank of Canada’s “R8” measure of joblessness, which takes temp jobs and other labour-market trends into account. That rate shows actual Canadian unemployment at 11.2 per cent.
The social ill of long-term joblessness in the U.S. is made plain by data showing that even as the rate of new job openings recovers, the rate of long-term unemployment continues to increase. “We can’t trust the invisible hand to generate the millions of jobs that are needed, especially with regards to the long-term unemployed,” says Felix Salmon, the Reuters economics analyst. “With gridlock in Washington, the result is a huge amount of unnecessary human misery.”
Studies show that prospective employers casting their eyes over a resumé look first to see how long the job applicant has been out of work. And if it’s more than five of six months, they’ll grant an interview instead to a less qualified applicant who has only recently lost a job.
The heartlessness to which Salmon refers is not uniquely American. His “gridlock” is the longstanding refusal of a Republican-controlled Congress to re-stimulate the economy as a previous Congress successfully did in 2009.
Up north, a similar decline in government’s contribution to GDP growth has occurred in tandem with falling GDP and job-creation growth rates.
On average in the 2000s, Canadian government spending accounted for a substantial 0.7 per cent of GDP growth, about one-third of the total. But in the recent “austerity years,” that contribution has collapsed to an average of 0.1 per cent, actual and projected, between 2011 and 2014. (See Page 29.)
Canadian GDP soared by 3.2 per cent in 2010 when government’s economic contribution was a lofty 1.1 per cent of total GDP. But come the government austerity years, GDP growth slackened to 2.6 per cent in 2011 and a mere 1.8 per cent last year. Canadian GDP growth is now forecast by the International Monetary Fund at an anemic 1.5 per cent this year and 2.4 per cent in 2014. That’s far short of the dynamic economic growth required to get Canada back to a semblance of full employment.
The ranks of austerity advocates in the U.S. and Europe are thinning, notably after it was recently revealed that a seminal pro-austerity essay by Harvard economists Carmen Reinhart and Kenneth Rogoff that became the global playbook for the austerity crowd is, by design or accident, an intellectual fraud.
< http://www.nextnewdeal.net/rortybomb/reinhart-rogoff-week-later-why-does-matterEND >
Austerity doesn’t even work. Ottawa told us last year that its cutbacks would reduce the deficit to $10.2 billion. Yet the latest deficit estimate, for 2013-14, is nearly twice that amount, or $18.7 billion. Why? Because austerity sucks demand out of the economy, stalling the pace of economic recovery. It also hikes government outlays on social assistance, including EI payments. This is what economists mean by “the paradox of thrift.”
Yet Ottawa’s stated commitment to worker retraining for the New Economy and its touted planned spending on infrastructure – both showcased in Jim Flaherty’s latest budget – are more rhetoric than reality. (Ottawa is actually cutting its Building Infrastructure Fund by a stunning 83 per cent in the next budgetary year.)
And it’s not as if everyday Canadians are demanding an encore to the approximately $60 billion in government stimulus that propelled Canada out of the Great Recession faster and more powerfully than any other major economy. With a low debt-to-GDP ratio that is the envy of our G-7 peers, Canada can comfortably afford to rebuild the country and prevent the emergence of a new permanent economic underclass.
It needn’t be repeated that decisions on austerity and stimulus have consequences. Or perhaps it does, since by our silent assent to faddish government austerity we are accepting “unnecessary human misery,” not in some faraway land but in our very midst.
< http://www.thestar.com/business/economy/2013/04/26/the_awful_consequences_of_austerity_olive.html >.