Business

Report shows recession's effect on income and jobs

WASHINGTON -- Up to 5.8 million more workers in the United States could join the ranks of the unemployed by 2011 if the economy were to fall into a severe recession, according to a report from the Center for Economic and Policy Research.

The report comes on the heels of the government's news on Friday that U.S. employers are cutting back on hiring. January marks the first monthly contraction in nonfarm payrolls in four years, and it may be the evidence that the economy has entered a recession.

Lawmakers are working on a stimulus plan that they hope will boost the economy and stave off recession. Technically, a recession occurs if the economy contracts for two consecutive quarters. The U.S. economy grew at a weak 0.6 percent in the fourth quarter, according to preliminary data.

In the case of a mild to moderate recession, spanning six to nine months, the research center projects 3.2 million more jobless by 2010. At the end of last year, about 7 million were jobless.

The research center, which applied trends from recent recessions to create a forecast for a 2008 recession, argued that the labor market would still be in bad shape even after a formal recession ends.

"The financial markets are basically sending an enormous storm over the economy," said John Schmitt, senior economist with the center and co-author of the report. "Even when the sun comes out, there will still be the devastation left behind. The hiring will resume at a rate slower than before, and with a big backlog of workers that are unemployed."

In a severe recession, which would last about two years, a typical family's inflation-adjusted income would fall almost $3,750 per year by 2011, according to the report, and the number of Americans living in poverty would grow by 10.4 million. In a mild to moderate recession, a family's income could fall $2,000 per year by 2010, and 4.7 million more people would be living in poverty, according to the report.

There's evidence that America's middle-class is already at risk. New research from think- tank Demos and the Institute on Assets and Social Policy at Brandeis University found that only 13 percent of middle-class families would have enough assets to cover most of their essential living expenses for nine months if they lost their income source.

The report found that at least 4 million more people would be without health insurance coverage in a mild to moderate recession. Some workers who lose their job may still be covered by a spouse's plan.

Karen Davis, president of the Commonwealth Fund, a private foundation in New York that supports independent research on health care issues, said recessions focus consumers more on health care.

"It raises your anxiety," she said.

She added that states experience a "double whammy" during recessions when it comes to health care. They collect less tax revenue as consumers cut spending and home values decline, even as the ranks of those relying on government support swells. A recession could harm nonprofit service providers.

"Their bad debts go up," Davis said. "More people are uninsured, more people are broke and they are just not able to pay their bills. A lot of (providers), particularly in low-income communities, operate pretty close to the edge. If they had to cut back on services, it would mean a lot more people going without care."

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