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State News: August 2009

 

 

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Unemployment Just Part of the Story

By Jennifer Burnett
CSG Senior Research Analyst
The national unemployment rate rose to 7.6 percent in January 2009, up from 7.2 percent in December 2008, which was already the highest rate in nearly 16 years. Unemployment, in part, contributed to a rising poverty rate across the country. Some economists believe the current recession will not end until the unemployment picture improves. But there are more people unemployed than is shown by the unemployment rate. Those numbers—added to falling income levels and the current economic problems—can have a major impact on state government budgets.
The high unemployment figures just tell part of the story. The number of those people working fewer hours than they want and those who have given up looking for a job must be considered for a more comprehensive picture of the nature of U.S. unemployment. Including people in those circumstances—either involuntary part-time workers or marginally attached workers—the rate of underemployed and unemployed workers climbs to 13.9 percent, according to the latest data from the U.S. Bureau of Labor Statistics.
The unemployment picture, according to the latest data from the U.S. Bureau of Labor Statistics released in February, is getting worse:
  • Nearly 3.6 million jobs have been lost since December 2007, with nearly 50 percent of that drop coming in just the last three months. In January alone, the U.S. economy shed nearly 600,000 jobs.
  • The number of “involuntary part-time workers”—those who wanted full-time jobs but worked fewer than 35 hours a week due to a reduction in hours because of unfavorable business conditions or because they couldn’t find full-time work—is up by 3.1 million over January 2008 and currently sits at 7.8 million for January 2009.
  • The number of “marginally attached” workers—individuals who wanted and were available for work, had looked for work in the last year, but had not searched in the past four weeks—hit 1.2 million in January 2009, 400,000 more than just a year before.
The Federal Reserve is predicting unemployment to hit 8.5 percent to 8.8 percent this year, according to economic projections released by Federal Open Market Committee Wednesday. Those projections also have the economy contracting by 0.5 percent to 1.3 percent this year as well. The Center on Budget and Policy Priorities believes if that happens, the number of poor Americans could increase by 7.5 million to 10.3 million over the 2006 number of 36.5 million people. The center reported that in 2007, about 12.5 percent of the population—37.3 million Americans—were living in poverty. 
And it’s not getting better across the income spectrum. Based on historical patterns from prior economic downturns, incomes could fall 5 percent to 6 percent in the next few years, dropping from a median in 2007 of $50,233 to around $47,000, according to The Urban Institute.
But the cost-of-living is rising fast. According to The Drum Major Institute for Public Policy, tuition and fees for the average public four-year university have jumped 76 percent since the 2000-2001 school year. Two-thirds of college graduates have student loan debt, with the median borrower owing $19,300.
Between 2001 and 2006, the number of middle income homeowners spending more than 50 percent of their income on housing increased by 1.4 million, according to a study from Harvard University’s Joint Center for Housing Studies. And health care coverage costs have outpaced increases in wages by a ratio of more than 3-to-1 since 2000, and have increased 78 percent since 2001, according to the Kaiser Family Foundation.
The combination of these and other economic factors have sent state revenues down, while at the same time creating a need for more government services, which will stretch state resources even more.
The Congressional Budget Office said government spending on food stamps alone in 2009 could grow to $50 billion—an $11 billion increase over last year.
Forty-two states are facing budget shortfalls of approximately $99 billion in this fiscal year, and those deficits are only expected to grow in the next fiscal year to an estimated $145 billion; 45 states anticipate budget shortfalls in 2010, according to the Center on Budget and Policy Priorities.
Meanwhile, state revenue collections fell sharply in the fourth quarter of 2008 with tax collections slowing in all 50 states in the third quarter of 2008, the Nelson A. Rockefeller Institute of Government said. These declines are expected to continue in at least through the first two quarters this year.
In an effort to balance their budgets in the face of such revenue shortfalls, states have been forced to reduce services. The Center on Budget and Policy Priorities said at least 33 states have made such reductions, including decreased spending in public health programs, programs for the elderly and disabled, K-12 education, colleges and universities, and state work forces. Alabama, Idaho, Indiana, New Mexico, North Carolina, Ohio, Oregon and South Carolina are cutting back 5 percent or more at the request or order of their governors, and other states are considering even greater cutbacks.
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