Summary:
1. Unemployment and how it affects individuals
2. Costs and effects of unemployment
3. Are there any solutions?
Introduction:
Since the beginning of March 2020, millions of Americans were temporarily laid off or permanently laid off, while a lucky few were able to work from home. It resulted in an alarming number of unemployment applicants, and the United States and the state of Michigan were not prepared to compensate financially. The unemployment rate through the pandemic rivals that of the Great Depression. To prevent our economy from completely collapsing, the federal government intervened with financial assistance programs, but some still believe it is not enough. Unemployment affects the individual, our society, and our country.
Unemployment and how it affects individuals
Unemployment offices nationwide were flooded with applications upon initial closure of certain economic sectors. When someone becomes unemployed, it's an unsettling feeling to receive the news that they will no longer receive a steady income. The average American's savings rate has been drifting down toward zero (and sometimes below), and there are some reports that claim the average person is only a few weeks away from serious financial trouble without a paying job.[1]
The process of finding assistance and signing up for unemployment is stressful for those that qualify, and even more stressful for those that are unsure if they will receive benefits. Many applicants who are approved for unemployment benefits are receiving less income than working full time.[2] While some other applicants were approved right away during the pandemic, others are still sitting in the queue, pending approval, or denied. When these financial stressors began rearing their ugly heads, individuals dipped into their savings, emergency funds, retirement savings, or selling assets. Unemployment causes a drastic change in a person's standard of living and can have devastating effects emotionally and physically.
- Education and Training: Those who are unemployed for long periods lose the value of education and are less willing to invest in years of training that some jobs require. An absence of income can force families to deny educational opportunities to their children and deprive the economy of those future skills.[3]
-Volunteerism: There isn't time or money to contribute to volunteering. Volunteering is something that can boost the morale of an individual while helping others. The lack of volunteering is a societal loss as well when individuals aren't able to give back.
-Taxes: Unemployment offices offer you to pay taxes as you receive unemployment or allow you to opt-out and pay taxes later. Most individuals don't realize it can accumulate to thousands depending on how long they are unemployed. Once they receive a job, this could set them back even further to get back on track financially.
-Candidate Job Value: The longer you are unemployed and the longer it takes to get hired effects your skills. When you’re not practicing skills regularly like you would while working. When you are applying for jobs, your application is less likely to stand out.[4]
- Health Insurance: To receive healthcare, costs are almost impossible to pay without insurance. Medicaid adds restrictions to who you see and when you can obtain coverage.
- Health & Wellness: According to a study on the effects of unemployment and insecure jobs on well-being and health by Joan VoBemer and her team, results show that unemployment is associated with more negative consequences than an uncertain position[5]. These negative consequences include mental and physical well being and overall health. An unstable income leads to instability of housing, food, and environment for individuals. Researcher Margaret Linn, Ph.D., and her team conducted a study looking into unemployment's mental and physical health effects. They found those who were unemployed were more likely to experience symptoms of somatization, depression, and anxiety. This psychological impact inadvertently affected their physical health and found they had more visits to their physician, took more medications, and spent more days in bed sick.
- Crime: A rise in unemployment coincides with an increase in crime. With more time and no money, individuals resort to criminal activity to survive. This is not only an adverse effect on the individual, but society as well.
The costs and effects of unemployment
Earlier, we mentioned that those with unemployment benefits and other types of governmental assistance are typically receiving less than their regular income. The most basic economic impact of unemployment can be directly attributed to a consumer’s ability to spend what they take in. When your income decreases, you are consuming less and not putting as much money back into the economy.[6] This can lead to long-term economic consequences.
When companies are trying to cut costs, they typically start with reducing their workforce. The remaining staff will typically be asked to work additional hours to compensate for the layoffs and are not likely to receive any further compensation, such as overtime pay, especially if salaried.[7] If companies continue to lose revenue, they cut costs in other areas and it becomes more difficult to keep up with consumer demand. Many small businesses that don't have consistent revenue, such as restaurants, were forced to close during the pandemic. It's estimated 100,000 small businesses who temporarily closed due to the pandemic are closing permanently.[8]
Unemployment benefits, food assistance, and Medicaid is provided by state and federal governments. In July, this totaled $18.26 billion in aid[9]. As mentioned in our previous blog, the government is also continuing to invest billions into the COVID-19 vaccine[10]. The government isn’t collecting as much income tax as before, forcing them to borrow money or print money to continue to reinforce market integrity. The long-term damage caused by job loss and other factors is what economists call an "output gap," a measure of what the economy could produce at full employment and capacity utilization compared to its actual performance. This measure shows how dire our economic situation remains. We have a 1.99 trillion dollar output gap, -10.4% of potential GDP[11], and the largest measured in 74 years, compared to the 1946 -11.6% GDP. [12] The money invested into our economy has kept it afloat, but now many experts see the economy stalling out as COVID cases continue to rise, with no vaccine readily available.
Are there any Solutions?
Our government and other corporations recognize job and education needs. They are slowly implementing different programs and opportunities to help reduce unemployment.
An interview between MSNBC News and JP Chase CEO Jamie Dimon exposed a plan that includes 26 other CEOs across the country, including Google, Amazon, Microsoft. Their plan is to create, “The New York Jobs CEO Council,” which partners with the Department of Education and nonprofits, in order to train and hire 100,000 traditionally underserved New Yorkers by 2030[13]. This initiative will support student learning, connect participants with career resources, and equip students with the skills they need for the future's shifting workplace.
In congress, representative Alexandria Ocasio-Cortez, and Senator Ed Markey proposed what they call the Green New Deal. In summary, the "Green New Deal" legislation sets goals for some drastic changes to cut carbon emissions, increase electricity generation, and improve transportation and agriculture. The goal is to achieve clean, renewable, and zero-emission energy sources. These changes are aimed to create jobs and boost the economy through sustainable work programs, similarly to the New Deal implemented by FDR after the Great Depression. The proposal stresses paying attention to the minority populations that are typically disproportionately affected by massive economic changes[14]. With guidance from experts and cohesive work on both sides of the aisle, this legislation could be implemented and help turn our economy around by creating a surge of employment programs.
Michigan state legislators have also diligently been working to implement programs that could help turn our economy around in the long run. Governor Whitmer is pushing to have the "Bipartisan Michigan Reconnect Legislation," which will help to provide tuition-free skills training and degree programs for adults[15]. Michigan's goal is to increase the number of working-age adults with a skill certification or college degree from 45% today to 60% by 2030. This is to build a better future by increasing job opportunities, close the skill gap, and make Michigan more competitive for economic growth. Some of these initiatives include programs like Futures For Frontlines and Going PRO in Michigan.
With these additional opportunities that corporations, our country, and our state are presenting, there's hope of coming out of this stronger than ever!
[1] Investopedia.com/the cost of unemployment [2] Investopedia.com/ the cost of unemployment [3] Investopedia.com/the cost of unemployment [4] Investopedia.com/the cost of unemployment [5] The Effects of Unemployment and insecure jobs on well-being and health. [6] Investopedia.com/ The cost of unemployment [7] How Unemployment rates affect everyone [8] https://www.cnbc.com/2020/09/16/yelp-data-shows-60percent-of-business-closures-due-to-the-coronavirus-pandemic-are-now-permanent.html [9] Investopedia.com/ The cost of unemployment [10] Roncourser.com/ COVID-19 vaccine [11] Imf.org/external/pubs/ft/fandd/basics/gdp.htm [12] Fred.stlouisfed.org/graph/?g=f1cZ [13] YouTube Interview PPP saved millions jobs [14] www.npr.org/2019 [15] www.michigan.gov/whitmer