Here’s Why U.S. Job Loss Worse, Wider Than Previous Recessions

by James Parks, Mar 18, 2009

The current economic downturn is the worst since the Great Depression and has led to more job loss than the previous two recessions. Just as in the 1930s, today’s economic crisis was triggered by a banking failure created in large part by financial degregulation. Both jobs and a stronger financial system must be addressed to prevent future problems, say two union leaders key to solving the crisis.

In a recent interview with National Public Radio (NPR), AFL-CIO Secretary-Treasurer Richard Trumka, a member of President Obama’s White House Economic Recovery Advisory Board, pointed out that the current recession is worse than the recessions of the mid-1970s and early 1980s when it comes to job losses. Says Trumka:

This recession began in December of 2007, and we’ve already lost more jobs as a percentage of total employment than in the entire ‘73 or ‘80-’81 recessions.

This recession also affects jobs in more industries than previous downturns, Trumka adds.

You have manufacturing jobs, you have construction jobs—all of those are similar, but you also have a lot of white-collar jobs that are going this time that weren’t as bad in those past recessions.

Click here to hear the full NPR interview.

One troubling similarity between the current recession and the Great Depression is that both began with a banking crisis. In the NPR interview, Federal Reserve Chairman Ben Bernanke says:

It was the financial crisis and the collapse of banks and other institutions in late 1930 and early 1931 that made the Great Depression “great.” And so we must have a commitment to stabilize our banking system to prevent the failures of any large systemically critical firms.

Trumka says it isn’t just the banking system that has failed. It is a deregulated financial system that has failed.

We came out of the Great Depression with the knowledge that a strong middle class America and a regulated banking system was the correct approach to correcting the corse of the economy. When we began deregulating the banking system and ignoring the health and growth of America’s middle class, we started down the slippery slope again.

Testifying before the House Financial Services Committee yesterday, AFL-CIO Associate General Counsel Damon Silvers laid out strategies the union movement sees as the most effective for saving the banking industry. Silvers told the House panel:

Systemic crises in financial markets harm working people. Damaged credit systems destroy jobs rather than create them. Pension funds with investments in panicked markets see their assets deteriorate. And the resulting instability undermines business’ ability to plan and obtain financing for new investments—undermining the long-term growth and competitiveness of employers and setting the stage for future job losses.

You can read Silvers’ testimony here.

Since 2006, the AFL-CIO has urged Congress to act to reregulate shadow financial markets and address systemic risk. The Congressional Oversight Panel, of which Silvers is a member, has made several recommendations to prevent future banking crises, recommendations which the AFL-CIO supports:

• There should be a body charged with monitoring sources of systemic risk in the financial system. The AFL-CIO believes the regulation should be the responsibility of a coordinating body of regulators, led by the chairman of the Federal Reserve. This body should have its own staff, resources and expertise to monitor systemic risk in institutions and products throughout the financial markets.
• The new regulatory body should be fully accountable and transparent to the public. We should not identify specific institutions in advance as too big to fail, but rather have a framework where larger banks are required to keep more capital on hand and pay more on insurance funds on a percentage basis than smaller firms.
• Systemic risk regulation cannot be a substitute for routine disclosure, accountability, safety and soundness, and consumer protection regulation of financial institutions and financial markets.
• Effective protection against systemic risk requires that the shadow capital markets—institutions like hedge funds and products like credit derivatives—must not only be subject to oversight but must also be brought within a framework of routine capital market regulation by agencies like the U.S. Securities and Exchange Commission.
• We must create a global regulatory floor for financial markets.

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