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Tuesday, February 23, 2010

Who Pays the Costs of the Recession?

The distribution of the benefits in the run-up to the recession as reflected in growing inequality has been widely discussed, as has the distribution of benefits in terms of various bailouts once the recession was underway. But what hasn't received enough attention is the distribution of the costs of the financial meltdown and the subsequent recession.

For example, the costs of unemployment are never distributed equally when downturns occur, the young and minorities in particular experience much larger employment shocks than, say, white middle-aged males. As noted below, blacks in many areas are experiencing unemployment levels that equal or exceed 20%, and the damage from the unemployment will be permanent, it won't go away if and when jobs return.

The recession is taking away opportunity for the young to gain employment experience, and many who are employed are working below their abilities in jobs they are likely to get stuck in for many years, if not forever. The recession is wiping out the accumulated assets of the unemployed as they try to bridge the gap until jobs return, and since many of these are older workers, this will have a large detrimental effect that lasts throughout their retirement years. Recessions cause skills to depreciate, there are psychological costs, there are costs to family members, the loss of a job generally means loss of health care, the costs to working class households go on and on.

And there are other ways in which the costs have been distributed unequally, and in many cases these have not been thoroughly examined. For example, there is evidence that minority groups were given higher cost and highly profitable mortgages when lower cost but less profitable loans were available. This also served to wipe out accumulated assets of minority borrowers in addition to all the other problems that come when a high cost mortgage cannot be paid.

The fact that many of the costs were concentrated among those least able to pay them stands in contrast to the fact that the bailout benefits were concentrated among those at the opposite end of the income distribution. Government transfers to compensate low income groups for the costs they were forced to pay but had no hand in causing, transfers that are financed by those who received the benefits during the bubble years and the bailout money when the bubble popped, seem more than justified.

Here's a description of one group that has been hit particularly hard:

Recession hits older blacks in what should be their prime, by Tony Pugh, McClatchy: America's economic recession has hit African Americans who are middle age and older much harder over the last year than it has the general public, according to a new survey released Tuesday by the AARP.
In telephone surveys, more than twice as many African Americans ages 45 and older reported having trouble paying their mortgage or rent, having to cut back on medications and having borrowed money to pay living expenses in comparison to the general population.
Twice as many blacks also reported losing a job and having a spouse who either lost a job or had to take a second job. Nearly twice as many blacks had difficulty paying for essential items such as food and utilities.
These older, established black workers also lost their job-based health coverage at higher rates, were more likely to raid their retirement savings prematurely and provide financial help to their parents and children more often than their age-equivalent peers, the survey found.
The data reinforces what many experts have said for months: that the recession is really a depression for many blacks, particularly in areas where black unemployment has surpassed or hovers around 20 percent. ...
The troubling findings paint a gloomy financial picture for African-American workers during what should be some of their prime earning years, said Algernon Austin, who heads the Race, Ethnicity, and the Economy program at the Economic Policy Institute ... said ... "These findings suggest we shouldn't be surprised if we see increases in poverty rates for blacks 65 and older in the coming years because a number of them are spending down their retirement income to try to get past this Great Recession," he said. ...

    Posted by on Tuesday, February 23, 2010 at 01:50 AM in Economics, Unemployment | Permalink  Comments (37)


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