Is Higher Unemployment One of the Legacies of this Recession?

A month or so ago, I wrote a post about the semi-permanent digression that occurred in the early 1990’s between U.S. unemployment rates and California unemployment rates. The cliff notes version is that from the early ’90’s on California unemployment has averaged about 2% more than the national average through all of the economic cycles.

I think as do lots of others that the cutback in defense spending that occurred at the end of the Cold War so devastated the defense industry in California that its economy never fully made up for the lost jobs. The question that this raised in my mind was would the current recession do the same thing to the country as a whole. Would it permanently raise the base unemployment rate. In other words would we end up redefining full employment.

It’s certainly too early to answer that question but a new WSJ survey indicates that it might indeed happen.

According to a new survey, 52% of companies expect to employ fewer people in three to five years than they did before the recession began. The survey of 179 companies was conducted this month by consulting firm Watson Wyatt Worldwide Inc.

Among employers who have cut salaries, 55% expect to restore the cuts in the next year. But 20% expect the cuts to be permanent. Of employers who have increased employee contributions to health-care premiums, 46% don’t plan to reverse the increases. Of all survey respondents, 73% said they expect employees to shoulder more of the cost of health care than before the recession began.

Nearly half of the employers who have cut their contributions to retirement plans expect to reinstate them in the next year. The remainder plan to restore the contributions after that, expect the cut to be permanent, or aren’t sure.

“We’re not going to go back to the status quo,” says Laurie Bienstock, national director of Watson Wyatt’s strategic-rewards practice.

I don’t think we should be at all surprised if the country ends up emulating California. I suspect the recession has either demonstrated to a lot of employers that they could operate more leanly than they thought or convinced many that smaller and more liquid might be the safer way to run their company. The real surprise might well be the types of jobs that don’t come back. For instance, the recession has shaken the legal profession to its roots. Layoffs and salary cuts have run through the industry and one does have to wonder if the shocks might not engender some permanent change.

I guess that just proves that even in the biggest of weed patches there blooms a rose or two.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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