Last Thursday, the Pew Research Center, released a report entitled “How the Great Recession Has Changed Life in America”. According to this research, we have just undergone a major change (as one would suspect from its title) on our outlook on life. One point not mentioned: our children our going to have to find new methods of finding jobs- including working for firms in other countries (unless we finally band together as a nation and GROW our country).
The first impact is that half of the homeowners surveyed reported a drop in value of their homes. What- that’s not news. But, more than 40% feel their values will not recover for some six years. That IS news. And, it will change our outlook on purchases and jobs for a long, long time.
The Fed has already given us information about this malaise. (I am augmenting that with my own data- which you are welcomed to verify, to join in my chagrin at the findings.) From the last 60’s days to the end of the 90’s, those families in the middle class and higher had their standards of living greatly augmented. The poor did not experience much change (so much for the trickle-down theory). From 1998 to 2007 (the year the Fed survey was completed- but you can bet your bottom dollar- which may indeed be your last one- that the recession made this much worse), the net worth for all families rose from $ 91K to $ 120K. However, mean net worth rose by $ 197K. Those of you who passed high school math understand that this means the gains were at the top- the VERY top. (I recall the numbers for when I lived in Charlottesville, when the discrepancy between median and mean income was a factor of two. That may still apply, but I have been gone for more than two decades. As you can see from the graphs, the US ratio is over 5!) Since our overall wealth dropped some 20% during the great recession (do the numbers, 20% of 120K means a 24K drop or that we are back to where we started), the discrepancy is even larger now. [The Pew Report provides this data by stating that the middle class was much harder hit than the upper tier. Among the top 20 percent, almost as many households report being better off as worse off since the onset of the recession. Among middle-class households, 45 percent report being worse off, versus only 21 percent who say they are better off.]
The Pew Report also demonstrates the problem with employment. In 1981/2 (the last worst recession since the depression), the unemployment duration was a little more than 12 weeks. As of May, the duration was over 23 weeks, with 46% of all unemployed being so for 26 weeks (6 months) or more. During the Reagan years, this was half that value (26%). Today’s employment rate stands were it was in 1985, erasing 25 years of gains.
The Pew report does not quite say this (but you can read between the lines): Starting with this recession, women are better off financially than men (this is true), but for the next decade, that differential will be increased. Male-dominated jobs are being eradicated at a bullet-train pace.
A final fact: Most of the jobs lost during the current recession aren’t coming back. This is not a cyclical downturn in the labor market. Returning to full employment will require many millions of new jobs in companies and even sectors that do not yet exist.
Right now, we cannot predict that the Great Recession will make our children as risk averse as our parents were. (OK, I am older, my parents, maybe yours were not part of that era). But, I fear it shall (I listen to my children and their peers talking). And, that means the “new normal” is not just a sobriquet.