High Unemployment is Here to Stay

You know things are bad when the nation loses 11,000 jobs in November and Americans are overjoyed. Sure, unemployment has come down a meager 0.2 percent to put us at 10 percent, but that's still the worst level in decades. And more important, there's no real end in sight. Even if jobs start to come back sooner than expected—which may happen as more stimulus money starts to kick in—U.S. unemployment is likely to remain high for years to come, as much as 7 or 8 percent even into 2014. "The average American will not be better off in five years—unemployment will remain high and wage growth will continue to be flat," says George Soros, who forecast an "age of wealth destruction" four months before the crisis hit.

But in this recovery, flat is the new up. Any near-term uptick in jobs will probably be small, because there's still plenty to be milked from existing workers. November's numbers show that the average workweek is only 33 hours, giving bosses plenty of room to crack the whip before hiring new employees. And one big reason for the November surprise was that the Obama administration has spent billions making sure job losses weren't worse. Even if the administration diverts bank-bailout money to support small businesses, as has been suggested, it will be impossible to replicate the stimulus surge of 2009. Growing debts simply don't allow Washington to spend much more.

One of the key differences between this recession and past ones is that credit has remained so tight for so long. Even though interest rates remain as low as they were in the easiest years of easy money, the cash simply isn't flowing. This is particularly devastating for the small businesses that create two thirds of America's new jobs; they depend largely on bank loans, which have tailed off 17 percent since last year. Nobel Prize–winning economist Joseph Stiglitz, who attended Obama's recent jobs conference in Washington, notes that small-business owners also tend to raise capital via home refinancing and credit cards. Now that the mortgage market has collapsed, and credit limits are being slashed and rates raised to 30 percent, neither of those options are viable. "There's simply no magic bullet for jump-starting job creation right now," says Stiglitz.

Meanwhile, globalization continues to take a toll, even on white-collar jobs. Emerging markets like China and Brazil have come out of the financial crisis richer and stronger; their better-educated, more-productive workers are increasingly able to perform jobs higher up the food chain. A recent McKinsey Global Institute report found that 71 percent of U.S. workers hold jobs for which there is decreasing demand, increasing supply, or both. Even million-dollar-a-year McKinsey consultants should be worried; how much longer will it be before $200,000-a-year partners at India's Infosys eat their lunch?

The cultural and political implications are sobering. Studies show that high unemployment has disastrous consequences for civic engagement. Depressed, laid-off people retreat from their churches, schools, and ballot boxes, an effect that is viral. "Having ever been unemployed makes you permanently less connected to your community," says Harvard professor Robert Putnam, author of Bowling Alone, the 2000 bestseller on social disengagement in America. Consider that unemployment among black men ages 16 to 19 stands at a devastating 57 percent, up from 34 percent in November 2007. Couple this with the fact that the crisis may exacerbate the gap between rich and poor, which has been widening since the 1980s, and you have a situation ripe for ugly, populist politics.

Any long-term fixes will mean focusing on primary- and -secondary-school education, to ensure a globally competitive workforce, and on affordable health care for all to help buffer wage inequality. Neither is simple or cheap. But they are crucial if Americans want to maintain their standard of living. A new Fidelity survey found that one in four workers ages 22 to 33, part of this new recession generation, now say they want to stay with the same employer for life, up from 14 percent in 2008. It's a touching commitment. The question is how many employers are really looking to get hitched.