The Unemployment Cushion

From the Wall Street Journal | Nov 17, 2009

By MARK PENN

With E. Kinney Zalesne

Unemployment has hit double digits in the U.S., and in some areas of the industrial Midwest, it is approaching 16%.
Joblessness in many parts of this country is destructive beyond belief.
The Federal Reserve Chairman said he sees little prospect of immediate
relief.

And yet, in other areas it is not nearly as bad as it could have
been. One reason is that bringing home a paycheck, especially in
upper-income households, is a shared responsibility today. That fact
alone, in a recession, can provide a lot of families with a built-in
backstop--an Unemployment Cushion--to the destitution that unemployment
in a recession can cause.

In the last 50 years, job growth has far outstripped population
growth. As a result, today's 10.2% unemployment rate leaves a far
greater proportion of the population at work than in the past. In 1961,
for example, when we hit 7.1% unemployment,
the record for that period, only a third of Americans had jobs. Today,
even with 10% unemployment, nearly half the country, or 138 million
people, is still at work.

Fifty years ago, of the 180 or so million people in the U.S., about 65 million were employed. That meant that every job in America basically supported three people (or 2.8, more precisely). The labor force was 67 percent male; barely one-third of U.S. women worked; and 49 percent of American households had at least one child of their own under 18. So when the breadwinner lost his job, it devastated his dependent, and often sizeable, household.

These days, the picture is very different. Just before the recession hit in 2007, of the 307 or so million people in America, about 146 million were working. Nearly half were women; and by 2008, the fraction of households with their own under-18-year-old had fallen to 31 percent.
In other words, the number of people maintained by each job in America
had dropped nearly 30 percent, to just over 2.0. So each job loss
affects nearly one fewer person on average than in 1960.

If men had still been the only breadwinners in most families, this
recession would have been a lot worse in terms of leaving more families
with no means of support. It is this spreading of risk across the whole
household that is giving us a cushion we would not have had in 1960,
and the families protected the most, not surprisingly are the upper
income married professionals-especially if they are not in the finance
or automobile sectors. Of course being reduced to one paycheck is not a
total cushion, but living for a while on one very stretched income is
still a lot better than living on no income at all.

The cushion, of course, has largely been created by the entry of
more women into the workforce. Moreover, this is the first recession in
which men (heavily concentrated in finance and manufacturing), not
women, are getting more of the pink slips. In fact, for the first time
in history, women have almost overtaken men as the majority of the U.S.
workforce - and may do so soon. They also comprise the majority of
students in college, and many of the professional schools.

But what's really interesting about the Unemployment Cushion is that
it underscores the compounded economic protection afforded by both
higher education and pairing off. While unemployment for college
graduates has more than doubled, it still stands at 5%, less than half
of unemployment for high school grads (11.2%) and a third of that for non-high school grads (15.5%).
And doctors are more likely to marry lawyers than they are bricklayers:
college grads tend to marry college grads. So the more you make, the
more your spouse is likely to make, giving highly educated families a
double economic edge, both in and out of recessions.

Indeed, with college-educated workers facing only 5% unemployment now (up from 2% in 2007),
the chances of finding a double-professional household with zero income
is only 1 in 400. These dual-income families are the ones still heading
to the mall every weekend: that is, possibly the only ones with the
consumer purchasing power to lead us out of the recession. They are
tipping the economic balance even further in favor of areas of the
country with a high proportion of double-wage-earning professionals,
places like Seattle, or Washington D.C.

But there has also been a surge in single-woman heads of households,
especially as a result of divorce. If you are a single woman with
children, you are facing tougher odds and more severe risks. While your
paired-off friends have spread their risk, dropping their number of
people maintained by their paycheck to two or fewer dependents, you
have taken on the single-earner responsibility borne by men in the
1960s. Indeed, even if you have a college education, and your chance of
having zero income is 1 in 20, that's still a lot bigger than 1 in 400.
Unless you have substantial networks of support from extended family
and others, you are utterly without a cushion, aside from government,
or your own savings.

The riskiest place to be, of course, is in the Midwest and in
manufacturing jobs. Being paired off and sharing responsibility won't
help as much there if you are both employed in one of the devastated
sectors, because they are likely to lay off both of you.

Some of the smartest people at the biggest firms caused this
economic crisis with a faulty analysis of risk, so it is ironic that
this analysis shows how the well-educated double-wage earning couples
have the greatest insulation from its effects. No one is completely
immune, but those couples' 1-in-400 chance of having no income stands
in sharp contrast to 1-in-6 chance of a single mother in the Midwest,
who could be facing foreclosure and destitution. It's also a pretty
good road map on how to protect yourself and your kids against the next
recession: get a college degree and pair up with a college-educated
partner.