Posted on 12/01/2003 4:31:00 PM PST by Willie Green
For education and discussion only. Not for commercial use.
THREE years ago, Susan Sullivan, then 34, and her husband, Peter, 44, were thriving. The couple, both marketing professionals, worked hard and enjoyed a combined income of about $250,000 a year.
Then, within two weeks of each other in the spring of 2001, the Sullivans lost their jobs, right about the time that she became pregnant. Unable to find work, they moved from Newton, Mass., a pricey Boston suburb, to Worcester, to cut their living expenses. With job prospects slim, they began entrepreneurial ventures: she, a marketing consulting firm, and he, a computer network security firm. Their daughter is now almost two. With combined yearly earnings of about $20,000, they have cut their spending to the bone and make ends meet with food stamps and credit cards.
"We had about $40,000 in savings, but we spent that a long time ago," Ms. Sullivan said. "Now we owe more money in credit card bills than I ever would have believed possible. We don't spend money on anything at all that isn't a complete necessity. Your whole way of thinking changes. The other day I was so excited: I got a credit card offer for a new card that will give us a long period with zero percent financing."
The Sullivans are scarcely alone. There were, on average, 8.4 million unemployed Americans in 2002. By October, according to the most current statistics from the Bureau of Labor Statistics, their ranks had grown to 8.8 million. One out of every four had been looking for a job for 27 weeks or longer, up from one out of five a year earlier.
And many who are working do so only part time. In October, according to the Bureau of Labor Statistics, 4.8 million people were involuntarily working part time - either because they could not find full-time jobs or because their employers had put them on part-time schedules. That is up 11.6 percent, from 4.3 million a year earlier.
In recent years, the effect of widespread joblessness on consumption patterns in the United States has been tough to recognize, largely because so many people, employed as well as unemployed, have relied heavily upon credit cards, mortgage refinancings and other loans to sustain spending that might otherwise have been unaffordable.
That spending has helped cushion the economy through some rocky times. "But the big question, moving forward, is whether we'll see enough recovery in the labor market so that income growth will be able to replace all these one-time events, like tax cuts and refinancings," Jared Bernstein, senior economist with the Economic Policy Institute in Washington, said.
With recent rosy news about the economy's third quarter, it might be hoped that increased hiring will enable households to recover from the financial difficulties of unemployment. But interviews with men and women in a variety of careers, family situations and cities across the country suggest that even as jobs are filled, the personal economic pain for those who have long been unemployed will be long lasting.
Consider Quay Anderson, a 30-year-old father of three young children, who lost his job as a crane operator in February. His job, which paid $16 an hour, had been the sole source of income for his family in Carlisle, Pa. Now, after going through retraining at the Regional Manufacturing Workforce Transition Center in Steelton, Pa., Mr. Anderson is on the verge of being hired as a commercial driver. But he said that it could take as long as five years of steady employment to get his family back in the financial shape they enjoyed before he lost his job.
"We've completely maxed out on credit cards and any other credit lines we had," he said. "I had a gun collection that I sold in order to raise money for groceries." The family does not spend money on anything that is not necessary. It is upsetting "when your kids want to go to Wendy's or McDonald's and you've got to say no," he said.
"We can't take them to see 'Brother Bear' in the movies," he said, "because we can't afford four movie tickets.''
A close look at household spending suggests the multiplicity of ways, large and small, that the rise in unemployment in the past year or so has affected consumption patterns and the economy.
"We have a 6-year-old son, and, although it's not the end of the world, it would have been nice to give him music lessons, but we can't," said Ellen Ball, 44, of Brookline, Mass. "We don't eat out. We don't travel. I used to make charitable contributions in the past. Now I ask, when people call, 'Can I give you my time instead?' "
Before Ms. Ball and her 42-year-old husband, Bruce Haimowitz, lost their jobs as software engineers in 2002, they earned a combined income well into the six figures. He was out of work for about a year before landing two jobs - one part time, one full time - that between them pay him about $45,000 a year. After looking for more than a year herself, Ms. Ball expects to start work shortly at a part-time $12-an-hour job. "We can't save,'' she said. "We don't entertain at all. We're in a holding pattern."
The path out of long-term unemployment is often a part-time job or full-time work at a lower pay scale, but it is not a promising path.
"The problem is the overarching forces that have resulted in major job losses and downward income mobility are permanent," said Stephen Roach, chief economist of Morgan Stanley. "If anything, they'll intensify, as high-wage jobs in both production and the services continue to move to countries like China and India where costs are lower. That's going to keep consumers under a lot of pressure."
Not surprisingly, families with nest eggs and other savings have been best able to cope with prolonged joblessness and declining household earnings. As soon as Mr. Haimowitz found work, he and Ms. Ball, lifelong savers, were able to refinance their mortgage, which helped lower their monthly expenses.
Andrea, 45, and Will Gill, 50, actually traded up to a $450,000 home in Smithtown, N.Y., even after Mr. Gill, a computer network consultant, had been out of work for two years. Mrs. Gill, an online manager for a travel agency, has had three years of pay cuts. Their household income is now about a third of what it used to be.
"We had built up equity in our old house, have always been savers, and we didn't have any credit card debt," Mr. Gill said. "Since buying the house, we can manage just by taking about $20,000 out of our savings each year. By most people's standards, we're not hurting."
But even the Gills have cut their spending. "When our bedroom set was falling apart, we fixed it rather than buying a new one," Mrs. Gill said. During this holiday season, they expect to cut their gift-buying budget by about two-thirds.
The question for many is whether the national economy will be able to shrug off the impact of the prolonged joblessness of families like these without skipping a beat. Their spending patterns and savings cushions, after all, have remained relatively strong. But the impact on the economy may be more pronounced when it comes to those households that experienced job losses when they had little or no savings, high levels of debt, or both. For those families, financial problems have escalated, and they may pose some collective risks to the economy.
One risk arises from households that have cashed in part or all of their retirement savings to meet day-to-day expenses. "Out here, where home prices are really high, there are a lot of couples with mortgages that only can be supported on two incomes," said Dan Rink, a career coach in Alameda, Calif. "When one spouse loses a job, it's a catastrophe. I see a lot of unemployed people who are drawing down their retirement funds just in order to make their mortgage payments."
A more immediate high-risk decision among the unemployed is whether to give up health insurance. "It's more important for us to stay current with our mortgage payments," said Robert Love, 60, of Houston, who lost his job as a manager of safety and quality control about two years ago. Neither he nor his wife, Ann, 56, who works as a receptionist at a beauty salon, has health insurance. "Quite honestly, you try not to think about it," he said. "Just hope everyone stays healthy."
The need for such survival strategies raises the prospect that large numbers of tapped-out baby boomers will reach retirement unprepared. Jonathan Greentree, 51, of Columbus, Ohio, lost his public relations job in 2001. He is now working in a part-time $8-an-hour retailing job that will last only through the holiday season.
Mr. Greentree has pared his budget to essentials but says he has been unable to make more than a year's worth of child-support payments for his 15-year-old son. He owes real estate taxes on his home, has depleted his savings, spent the proceeds raised from a mortgage refinancing, tapped out a line of credit and accumulated large credit card debts.
"To be real honest, college savings have fallen by the wayside," he said. "I have very little retirement savings. It's scary. If I ever do get a job, I've got to get credit counseling because I don't know how to solve these problems."
Some people do manage to re-enter the work force and regain financial stability, but still feel anxieties. Ian Boardman, 44, of Arlington, Mass., who has a doctorate in cognitive science and experience at some dot-com start-ups, has had two different bouts of unemployment since the spring of 2001. Recently, he was hired by a research laboratory, weeks before his unemployment insurance would have run out.
"My wife is a financial whiz who has renegotiated our mortgage twice to save money," he said. "We've been able to make do on unemployment, with a little help from our parents. We're not big on consumption anyway."
But Mr. Boardman emphasized that he and his family lost their sense of security. "We are middle class," he said. "We're good people. And what does the system say to us? 'Sink or swim.' "
The biggest question for many people is: What will happen if new job opportunities are indeed created during the recovery but do not provide enough pay and benefits to repair the financial damage caused by prolonged unemployment?
That is a question facing Richie Calladio-Nuzzo; his wife, Jenni; and their 13-year-old daughter, Michelle, of Newton, Conn. Mr. Calladio-Nuzzo, 34, an electrician, used to earn at least $30 an hour, with benefits, in union-covered jobs. But he spent nine months during 2002 unemployed and still could not find work in the winter and spring of 2003.
"It was really bad," he recalled. "All last winter, we kept our house heated at 58 degrees. Early on, we maxed out on our credit cards, and we couldn't keep up with the payments we owed. I don't go to the doctor at all. But when it comes to a choice between buying medicine for my wife, who has asthma, and eyeglasses for my daughter, who needs them to see, or paying the electric bill, well, we did what we could. Fortunately, the electric company can't cut you off during the winter."
In May, Mr. Calladio-Nuzzo received permission from his union to take a nonunion job, which pays $20 an hour, and offers no benefits.
"I'm glad to be working, but let's be real," he said. "The only impact this job has had is that I no longer have to call the phone company and electric company to make special payment arrangements. Our heater is broken upstairs, and I can't afford to bring in a plumber to fix it. We still have to screen our phone calls. A collection agency will call and say, 'Make a one-time payment of $800.' And I tell them, 'Are you kidding? If I could pay you $800, wouldn't I have just paid the $100 minimum that's due?' "
From Mr. Calladio-Nuzzo's perspective, it is difficult to see any light at the end of the tunnel. "You think you'd enjoy it to know that you're not going through this alone," he said. "But when I see the guys that I've worked with, it's awful. We look at each other and say, 'It's never going to end.' "
That is just what Pam Shira Fleetman, 55, a technical writer in Acton, Mass., fears. She has been out of work since July 2002, and recently cashed in her retirement account so she could pay enough of her overdue mortgage and property tax bills to avoid losing her house. She has "huge" credit card bills. Her car is nearly nine years old. A divorced parent, she worries that next year, when her son turns 13, she will not have any money to spend on a bar mitzvah.
"When I think about all this," Ms. Fleetman said, "there's just one question I'd like to ask all those titans of industry who are laying people off and outsourcing all those jobs overseas: 'Who do you think you're going to be able to sell your products and services to here in the U.S.?' "
No kidding. Shoot most grocery stores don't start full time people at less than 7.50 an hour, which full time for a year for 2 people would be 30k a year.
I live in the "steel valley," where all the union drones are whining about the prospect of Pres. Bush eliminating tariffs against foreign steel. Keep in mind that these guys - with barely a high school education - are making around $80K per year for manual labor jobs. Gee, why do you suppose that Brasilian or Chinese steel is so relatively cheap, and why would U.S. automakers rather buy the foreign stuff?
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