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The housing crash and long-term unemployment

longterm-1.jpg

Annie Lowrey, whose company I frequently enjoy in non-work contexts, has a very good piece on the unprecedented rise in long-term unemployment (see graph above) that focuses particularly on the story of Cindy Paoletti, a 53-year-old woman in upstate New York who used to work in JP Morgan's corporate accounting office but got laid off in December 2007 and hasn't been able to find a job since.

There's a lot going on in Paoletti's story, but I'd note one part in particular: She's underwater on her mortgage. That is to say, the drop in housing prices means she now owes the bank more than her house is worth. So there's no upside to selling. And that means that unless she's willing to walk away from her mortgage, there's no real way for her to leave her economically-depressed town and move to a place where jobs are more plentiful.

My hunch is that this interaction between housing prices and labor mobility is at the heart of a lot of the rise in long-term unemployment. Areas where there are no jobs are also areas where the housing sector is devastated. So the people who are there can't sell their homes, which means they can't move to places where there are jobs, which means they just get stuck in this endless unemployment cycle. They've applied for what little is available, and until they're willing to walk away from their mortgage, they're just stuck without a job.

By Ezra Klein  |  June 10, 2010; 11:25 AM ET
Categories:  Economy , Housing Crisis  
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Comments

What she describes is part of it, but if you look at the productivity numbers, it is clear that businesses are just trying to squeeze more and more from the people they already have, and workers afraid of losing their jobs have no choice but to put up with it as best they can. The squeezing includes longer hours (especially if they are salaried, not hourly workers), cuts in pay and benefits, and switching people to part-time where they don't get benefits.

Consumers were the geese that laid the golden eggs. True, many people got into debt over their heads when times were good, partly to make up for a lack of income gains. But still, business, especially the financial services industry, has pretty well killed the golden geese by promoting debt while hogging all the productivity and income gains for themselves. So now we are in a vicious circle from which escape is going to be very difficult.

Posted by: Mimikatz | June 10, 2010 11:34 AM | Report abuse

Where is this magic place that has all the jobs that you want people to move to? 41,000 private sector net job gain last month. What's that 850 new jobs per state.

Posted by: obrier2 | June 10, 2010 11:48 AM | Report abuse

I don't think you can have a serious discussion about long term unemployment without at least acknowledging the possible effects of continuously extending unemployment benefits.

Posted by: WEW72 | June 10, 2010 12:39 PM | Report abuse

The point is that companies are both decrying a lack of talent pool and claiming their applicants are overqualified. Giving them the benefit of the doubt that this isn't just a ploy not to hire you, I'd say that this is actually because if you're tethered to an overvalued mortgage, you're also tethered to your area. So if another area needs your expertise but your area doesn't, it's made that much more unlikely that you'll move to where you're needed.

Anything that constricts freedom of movement is detrimental to job quality and/or quantity.

Posted by: akusu | June 10, 2010 12:42 PM | Report abuse

All of these housing issues would be resolved with a modest increase in inflation for a short period of time. But I'm sure our current deflationary policy will work just as well via some avenue mortals can't understand.

That said, any data set that compares the number of long term unemployed when long-term unemployment benefits are available to the number of long term unemployed when long-term unemployment benefits are not available is trash, pure and simple.

Posted by: eggnogfool | June 10, 2010 12:57 PM | Report abuse

If people don't have a job, how are they paying the mortgage on the house? I sense another factor, which is the challenges in pursuing two careers in one household.

Inflation is coming at some point, which should reduce real wages and increase nominal housing prices. I don't see any other way to get around the combination of the sticky wage problem, reinforced by the minimum wage hikes, and lower production costs in other countries.

Posted by: staticvars | June 10, 2010 1:12 PM | Report abuse

I live in the southern tier (about 4 hrs north of NYC, 1 way)...Its beautiful here but employment has always been tough. Our kids have to leave to make a living. Self improvement and self employment is the last best hope for many here.

Posted by: Brooklynbrenda | June 10, 2010 1:54 PM | Report abuse

Although there's still a lot of cluck-cluck in the MSM about the ethical issues involved in walking away from a mortgage, it seems like that is going to be the only solution in the hardest hit areas. At some point, the banks are going to have to choke on the results of all the bad decisions they made in order to clear the market. But we keep hearing moans and groans about how 'housing prices are not rising yet' when rising housing prices were the source of the problem in the first place.

Posted by: exgovgirl | June 10, 2010 1:58 PM | Report abuse

"Cindy Paoletti, a 53-year-old woman in upstate New York who used to work in JP Morgan's corporate accounting office but got laid off in December 2007 and hasn't been able to find a job since.

There's a lot going on in Paoletti's story, but I'd note one part in particular: She's underwater on her mortgage."

To echo staticvars, how on Earth is this woman paying her mortgage after being unemployed for 2 1/2 years?

"My hunch is that this interaction between housing prices and labor mobility is at the heart of a lot of the rise in long-term unemployment."

Agreed. Why we try to incent people to live in homes through the tax code is beyond me. Good to know we just had an expensive tax credit put another million or so people into homes, many of them with just 3.5% down on their FHA loans. But house prices won't be able to crash again, will they...?

Posted by: justin84 | June 10, 2010 2:51 PM | Report abuse

The upside to selling is eating; that is, selling a mortgaged property at a loss might enable the purchase of food. The story underscores the need to reduce -- not increase -- benefits to the jobless as part of an overall effort to re-integrate a positive work ethic and a sense of personal responsibility.

On this count, the Obama Administration may be heading in the right direction: by pushing its arguments in favor of the PPACA mandate, the next Congress will be able to simply mandate the purchase of "good" items and punish those who fail to make the required purchases, encouraging many to sell their homes in order to meet the mandates and preserve their freedom.

Posted by: rmgregory | June 10, 2010 3:11 PM | Report abuse

I am Cindy Paoletti. Let me make one correction to this article, I am 58 years old not 53. In answer to the person that asked how I am paying my mortgage payments, my husband passed away almost 4 years ago and I have been using life insurance money to pay the bills. That is almost gone (about 1 month of bills left) so I will be paying a penalty and withdrawing my IRA to survive. The entire article is at the following link, which will answer any other questions you may have. It's not a pretty world out there for the long term unemployed and there are thousands of people in much worse shape then I am in. I have and will fight for them to get the help we need from the lawmakers we voted into office, and are totally out of touch with the real world!
http://washingtonindependent.com/86700/as-long-term-unemployment-deepens-99ers-look-for-answers

Posted by: cindy98989 | June 10, 2010 3:17 PM | Report abuse

Cindy,

Thanks for sharing your story and I hope things in your life begin to brighten again soon.

And this distasteful comment:

"The story underscores the need to reduce -- not increase -- benefits to the jobless as part of an overall effort to re-integrate a positive work ethic and a sense of personal responsibility."

...typifies the air tight Dickensian bubble of ignorance within which those who oppose help to the unemployed exist.

Posted by: Patrick_M | June 10, 2010 3:49 PM | Report abuse

If you are unemployed and don't have a home, you're also pretty much stuck. I'm 52, divorced, live alone, live solely on unemployment benefits (have nothing else left), and have sold a great many items of value just to hang on.

The people who tell you to "just move" don't ever think beyond those useless words. My job's gone, my credit's shot. A landlord won't give me a lease without a job, and I certainly have nothing for a security deposit in addition to the first month of rent. I barely have money to survive, as unemployment in my state (IL) is 47% of what I used to make. I had to sell my junker car long ago, and I have no money to move across the street, let alone out of state. Considering that 39 states offer state extended benefits (EB), things aren't looking too rosy in most other places, either.

Four year ago, I sold my home, pocketed my minimal proceeds, and moved to Chicago from Pittsburgh for a "fresh start" after 48 years in PA. The end result? I have now been unemployed for 20 months, and I'm not going anywhere fast.

Posted by: msanonymous222 | June 10, 2010 5:12 PM | Report abuse

Older workers who are unemployed are relegated to the economic scrap heap. Public policymakers at best ignore them or hope these workers 'retire' even if it means a substantial decrease in quality of life.

On the extension of unemployment benefits, the benefits should not become an open-ended entitlement program. Those on extended benefits should be required to be enrolled in job training or at least in programs to improve their job seeking skills. Having been unemployed, I know those types of programs would have been very helpful. People need to keep their skills sharp and current. Even a relatively short time out of the workforce can put them behind the curve in the more technical fields.

Posted by: tuber | June 10, 2010 5:16 PM | Report abuse

This is exactly why congress needs to spend more money on creating jobs, pass an extension of unemployment benefits and maintain those COBRA subsidies. I've heard great discussions about job searching on an Internet radio show at www.jobtalkamerica.com

Posted by: kcsam215 | June 10, 2010 6:24 PM | Report abuse

Glad to see the government has been effective at fighting age discrimination since '75...

http://www.dol.gov/dol/topic/discrimination/agedisc.htm

But more seriously, this is a big problem.

I remember reading a book a few years ago called 'In Our Hands' by Charles Murray. His contention was that we should just give everyone $10,000/yr, nothing else, and be done with it. That was in 2002 dollars, so today that would be $12,000/yr. That's not a lot, and would represent a very large cut for seniors (hence this plan will never fly).

But I can't help but wonder if it wouldn't be a good idea if we could start from scratch. Under Murray's plan no one starts to pay back the grant until $30,000 or so of income in today's dollars. If one person can work and make $30,000/yr then the household has close to $54,000/yr to work with. That's not riches but it's not nothing.

Instead of having a payback period, you could also put in a flat tax to make conservatives happy - 25% on all labor and capital income. Think about it - no one pays net tax until they make $44,000, and at $88,000 they only pay 12.5% in total federal taxes. Hedge fund managers don't get a free pass. Seems quite progressive to me. Plus you wouldn't have to do your taxes - it could be taken out of your paycheck like FICA is now.

People in Cindy's position would at least have $1,000/mo coming for life (and so would her friends and family).

Anyway, I'm sorry to hear things got so tough for you Cindy. I didn't read the story, I just took Ezra's comments and ran.

Posted by: justin84 | June 10, 2010 7:05 PM | Report abuse

I am not one of the unemployed however see the need for Unemployment extensions...
... Congress needs to be held accountable for the their failure to create a jobs bill and a jobs market.

extending Unemployment is not the answer however it what is needed. the Answer is to create jobs, which will take Congress to place hire taxes on any company that out sources jobs over seas, higher taxes on any funds leaving the US and higher tariffs on imports.

Until then we have to pay out unemployment for the failure of our leaders.

Support unemployment here, it is one of Change.org highest all time petitions.

http://www.change.org/petitions/view/the_99ers_need_a_tier_v_added_to_unemployment_benefits

Posted by: Tim_incubator | June 11, 2010 4:28 AM | Report abuse

I too am in a very similar situation to Cindy's. I live in KY and have applied to so many positions that I am extremely qualified for. Do I get a job offer? NO. It's the strangest thing, they tell me I'm qualified, marvel at my experience and that's it. I truly believe they think I will bolt as soon as anything "better" presents itself...and of course they're right. But that's not helping me right now. I too, cannot sell my house. Nobody is seriously interested and I've lowered the price multiple times.

As for all the socalled jobs in other states, that's a myth too! I do a nationwide job search, not just my local area. There are far less available positions this year than last! It's just horrific. And please, everyone note the "unexpected" decline in retail sales in May. I knew it was coming...I'm in the REAL world, unlike these socalled "economists"..They need to lift their heads out of their "spreadsheets" and hit the street. They were all WRONG 3 years ago...and they're DEAD WRONG THIS YEAR.

This situation is beyond comprehension for someone that isn't living it. I too would have a hard time believing somebody that say's they can't find a job within 2 years...but the truth is IT IS TRULY THAT BAD OUT THERE.

Within the next 6 months, there will be literally MILLIONS of people who will have exhausted ALL benefits. When this wave hits, and it will, it those in "power" are in for an extremely rude awakening. I say, let the games begin!!!!

Posted by: lcm2 | June 11, 2010 1:03 PM | Report abuse

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