Economy of Fear

ECONOMY OF FEAR….Via Max, the Congressional Budget Office has a new report out on income volatility. CBO Director Peter Orszag makes the point that although the broad economy has gotten more stable over the past few decades (fewer big booms and busts), at the individual level it’s gotten less stable. This is especially true for high school dropouts, who have considerably more income instability than more educated workers.

The chart on the right, adapted from the report, shows one of the reasons that people feel so economically insecure these days even though broad trends seem benign. Consider: Since the mid-80s the headline unemployment rate has been both steady and moderately downward trending. So why is fear of unemployment seemingly greater than ever?

Answer: because the consequences are so dire. The risk of losing your job may not actually be greater than in the past, but if you do lose your job the odds of a catastrophically long period without work are much greater than in the past. It’s one thing to be afraid of losing your job for a few months; it’s quite another to (justifiably) be afraid of losing your job for six months or more. Healthcare is part of it too. From the CBO report:

One study found that, on average, workers who lost a full-time job from 2001 to 2003 and found a new job by the time they were interviewed in 2004 earned about 17 percent less than they would have earned had they not been displaced. That amount was roughly double the average loss in earnings incurred by workers who were displaced in the late 1990s.

A previous CBO study…found that the former recipients of unemployment insurance benefits who went back to work within three months after their benefits ended were earning about 15 percent less than they had earned before they lost their job. About 30 percent of them lacked health insurance; 20 percent of them had been uninsured before they lost their job.

For more on the healthcare front, check out yesterday’s report in the LA Times about the latest round of negotiations between grocery workers and supermarket chains in Southern California. The supermarket lockout in 2003 was eventually resolved with a new contract that reduced healthcare benefits, and the results are about what you’d expect: the number of workers covered by health insurance has plummeted from 94% to 54%. The dismal numbers are here.

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