Jobs: How Bad Will Unemployment Get?

At this point in her life, Kelley Krostoski has a few relatively simple expectations: a successful career as a high tech and management consultant that would easily afford her the ability to pay her two daughters' college tuition, plus enough for a comfortable retirement in her town of Beaverton just outside of Portland, Ore.

Instead, the 47-year-old has been unemployed since February. Her sole job prospect, so far, would have required her to take a 40 percent pay cut—something she gladly would have accepted had the company not suspended new hiring. "A lot of my former colleagues have been out of work for over a year," she says from her home, during what should have been the middle of her workday. "It's nerve-wracking that it could go on."

Today's unemployment figures don't offer much solace for job seekers like Krostoski. Nationally, unemployment reached 9.5 percent, up from 9.4 percent in May, according to the U.S. Bureau of Labor Statistics. "Clearly, having a large number like this at this point is disconcerting," says Sharyn O'Halloran, a professor of political economy at Columbia University. "We are not seeing the stabilization we had hoped." Indeed, this is the worst peak of unemployment in the last 26 years. The last time we were this close to the 10 percent mark was during the 1982 to 1983 recession, when the nation was dealing with the savings and loan crisis, the residual effects of the 1979 oil crisis and prime interest rates as high as 21.5 percent.

Could things get that bad again? It's unclear. While a few optimistic economists are eager to point to "green shoots", the on the ground scene in many states more closely resembles scorched earth. That's particularly true in a Western group of states including California, Oregon and Nevada where unemployment rates have surpassed 11 percent.

The overall economic picture there is grim. California's looming budget deficit means the state may have to hand out IOUs in lieu of paying its bills. Within the last year, more than 300,000 homes have gone into foreclosure in Nevada. Officials at the Oregon Employment Department say anecdotally they're trying to absorb an increasing number of jobless transplants from places like California. Then there are states like Michigan which rely heavily on a single industry. There, the unemployment is now 14.1 percent and officials are running a budget deficit of roughly $1.7 billion. In all these states, funding for education, public safety and parks is in danger of being cut even more.

Still, the current "Great Recession" isn't quite as bad as the "Great Depression" when unemployment averaged 25 percent and when the economy suffered for a full 43 months. This recession may not be as long, but it still feels acute, and unemployment figures vary widely across social, ethnic and racial groups. Despite our modern safety nets and President Obama's emphasis on boosting social service programs, it's still incredibly easy to fall through the cracks.

"The people who would be the top earners are now making less. This means people will be working longer and the capacity to open jobs for the next generation is very limited," O'Halloran says. While government assistance can help blunt the impact of joblessness, if the national unemployment rate crosses the threshold of 10 percent, it may batter people's psyches, O'Halloran says. How will they act out? In much the same way they have over the past year: consumers stop spending. If that worsens, retailers' inventory will continue to pile up and manufacturers will suspend production even more and companies of all kinds will have to layoff additional employees. And, high unemployment means workers are more likely to accept lower salaries, which, in turn, lowers the regional and national tax base.

To stem the tide, the Obama Administration has launched several stimulus packages to help the unemployed -- from subsidizing the cost of COBRA health insurance to extending the number of weeks during which people can collect benefits. The stimulus money is also supposed to create jobs, but there has been lag time as the "federal money trickles into states."

For job seekers like Krostoski, the double digit unemployment rate means more uncertainty. Her husband's business as a self-employed real estate appraiser has fallen off, and the couple has stopped spending any unnecessary money so they can make their savings last as long as possible. "I don't know if I'll be able to get the same compensation again," Krostoski says. "Maybe those days are gone."