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Tags: finance, personal finance, job loss economic ripple effect
 The numbers are staggering to comprehend. Despite the fact that our workforce has increased by over 12.5 million for the past nine years we actually have less people working since that time. The Department of Labor has already reported that for June alone, unemployment due to job loss totaled 467,000, a number that has pushed our country’s unemployment rate to a 26-year high of 9.5 percent.
President Obama said that “it took years for us to get into this mess and will take us more than a few months to turn this around.” While that is a pretty optimistic view I doubt if it will take more than just a few months to turn this around.
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Since unemployment or rather since employment is a lagging indicator, even if the economy gets better, layoffs are still going to be projected beyond 2010. And as Ryan Sweet, senior economist with Moody's Economy.com said, “If businesses fail to slow the pace of job cuts, the stabilization in consumer spending and home sales will unravel, and the recession won't end later this year as forecast." Let’s face it, we have a very weak labor market.
This weak job market is dampening wages across the board. And even if you are one of those still lucky enough to survive the unemployment surge and are still holding on to your job, now more than ever is NOT the time to get complacent. Because there is still the unemployment or job loss economic ripple effect to contend with.
Let me ask you this: I’m sure you’ve had occasions before where you threw a pebble into a still body of water and watch the ripple waves flow from where the pebble hit the water until it reached the edge of the body of water right? Using this scenario let’s imagine the pebble as unemployment or job loss and the rippling waves are its effects on you and our economy.
Simply put, this means that in good times, one new job say in Detroit can help create another one in California. Of course the opposite is also true, and somewhat devastating, that in tough economic periods, unemployment or job loss in Detroit can reverberate throughout the country—and we have seen it happen with the Big 3 automobile manufacturers laying off people from their plants which in turn also results in similar layoffs to related industry across the country.
But it’s not just Detroit, this is happening everywhere. Take the case of Caterpillar’s layoffs at its Mossville, Illinois plant, according to an article I read in NPR’s website. 33-year-old Tina Bajic, who works at that plant polishing truck crank-shafts, was one of many who got laid off. As part of her unemployment belt tightening measure she won’t be buying a new car or like many others won’t be eating out as often in Building G, a restaurant and bar frequented by Caterpillar workers.
Because of the slowdown in patrons, Building G has also let go of workers, one of which is Tammie Cox of nearby Peoria. And just like how the Caterpillar layoffs had affected her restaurant job, her own unemployment will also negatively affect businesses that she patronizes since she may not buy clothes that often or even travel that much anymore.
And when people don’t travel it is the airline and hotel industry that get’s hit the most. Less fliers or travelers means less revenue for both industries which in turn can mean another round of lay-offs for their employees, whose own unemployment will affect other business across the country. As you can see it is a vicious cycle, and one that if left unchecked will be self-perpetuating.
I do hope the President’s stimulus package will be effective else we are in for a long bumpy ride to economic recovery.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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