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I was talking to a friend and he mentioned how much trouble he had finding a job.  He spent six months finding the job and it pays less that he needs.   How is it that a talented and hard working person has so much trouble getting a reasonable  job?

My friend’s trouble reminded me that America has a major unemployment problem that dates back to 2008.  That was the year we learned that major financial institutions had mismanaged themselves to the point of near collapse.  As a result interest rates for refinancing homes rose impressively and individual homeowners, who faced “balloon” mortgages that increased their monthly payments by hundreds of dollars, began to default on their loans.  They had been promised re-financing but were unable to get the re-financing due to the financial companies mis-management.

As more homeowners faced foreclosure, a chain of events occurred.  First the major financial institutions facing bankruptcy appealed to the US Treasury for help.  Second, Congress authorized a 750 billion dollar bailout.  Third General Motors and Chrysler, also facing failure asked for federal assistance.  Fourth Congress agreed to help the automotive companies.  Fifth, President Obama, who had inherited the problems and the congressional solution, explained that if the bailouts worked properly we could avoid major depression and massive unemployment.

So, with tons of money to support them, the financial companies began to become solvent and the automotive companies began to recover.  And, as usual, the companies began major layoffs and started restructuring their business.   These actions helped the companies and their report to stockholders, but increased the problem of workers.

After the huge and impressive government actions, why has unemployment continued to be high so long after the  business “bailout”?  Wasn’t it assumed that the rescued companies would re-hire the unemployed?   An article by Robert Reich, a noted economist from University of California at Berkeley, might help explain.

Professor Reich observed that a clear pattern has emerged when studying historical recessions.  A great recession starts by hurting rich citizens and wealthy companies.  The companies trim their operations and begin massive lay-offs.  When the business starts to recover they begin satisfying stockholder and paying back any loans or assistance they received.  As profits begin to flow, they invest profit money in “safe” investments and savings accounts.  The newly rescued attempt to avoid any action that might lessen profits.  Accordantly they are conservative and lack confidence.  So the huge financial corporations are very reluctant to make loans to small businesses who  would hire the unemployed.

The very last event to occur is re-hiring workers.  So, In this case, big business and rich people do not even consider helping the common citizen who is desperate for a job.  And to make the situation worse, many large companies see the opportunity to get cheaper labor by moving operations overseas and others save labor costs by automating as many jobs as possible.

So, as uncaring and ungrateful as it seems, the businesses that the average taxpayer paid taxes to bail out of their financial problems do not see any reason to help the unemployed by re-hiring workers.  Historically it usually takes several years before the unemployed see relief in a major recession.