Southern California Bankruptcy Law Blog

Unemployed? Underemployed? File For Bankruptcy

Posted in Chapter 13, Chapter 7, Debt

In spite of the claims of some starry-eyed economic analysts that the recession ended in June 2009, and that we’ve been  in an “economic recovery” since then - sure had me fooled – unemployment has been stubbornly high, both at the national and at the California levels. 

According to the U.S. Bureau of Labor Statistics the national rate is 9.1% and the California rate is 12.1%.  Is this a temporary problem, or one that is a new, permanent structural problem?

In the October 14, 2011 edition of the Wall Street Journal’s MarketWatch, Howard Gold had this to say:

Survey after survey showed Americans didn’t believe the economy was recovering. And people who commented on MarketWatch articles have been downright hostile to any notion that either the markets or the economy were getting better. But economists need hard data before changing their minds. And over the past few months, more and more of them have concluded that indeed the depth of this particular recession and its roots in the financial crisis have combined with structural changes in the economy to push the so-called “natural” unemployment rate in the U.S. permanently higher. . . . Listen to Charles Plosser, president of the Federal Reserve Bank of Philadelphia, in a speech a couple of weeks ago.  “These numbers are troubling, especially when more than 40% of the unemployed, or some six million people, have been out of work for 27 weeks or longer,” he said.  “Millions of unemployed workers may take longer to find jobs because their skills have depreciated or they may need to seek employment in other sectors. These structural issues will take time to resolve. Jobs and workers will need to be reallocated across the economy, which is a long and slow process.”

As a bankruptcy attorney I frequently serve clients who are either unemployed, or underemployed.  Based on my work and the changes that I have seen over the last few years, I have concluded that things are not only not improving, but actually getting worse.

You might complain that my opinion is skewed because of the fact that my clients are more likely to have employment problems than non-bankruptcy candidates – a sort of self-selection bias.  And up until now, without the official data to back me up, I might have given some credence to your complaint.  However, the data paint a pretty compelling picture in favor of my position.

Mr. Gold continued:

Long-term unemployment is critical here: As of September, six million of the 14 million unemployed were out of work for more than 26 weeks and the average duration of unemployment was 41 weeks, according to the Bureau of Labor Statistics. That’s about double what it was following the recessions of the 1980s, 1990s, and early 2000s — and it’s the main reason economists are re-writing their playbooks. . . There are 14 million unemployed people in the U.S.; 9.3 million more are “involuntary” part-time workers. And 2.5 million others were “marginally” attached to the labor force, having not technically looked for a job for four weeks, according to the BLS. That’s nearly 26 million people, almost 17% of the labor force. It’s an “army of the unemployed” more than ten times the size of the U.S. military and its reserves.

Of course, it doesn’t help that one the main U.S. exports over the last two decades has been jobs.  As more jobs are outsourced to sweatshops in the third-world, Americans find themselves competing for a shrinking job pool.  Many of those who find jobs end up in part-time positions, temporary positions, or as “independent contractors” (a.k.a. employees with no benefits).

Those whose natural inclination is to look to government for a solution will be sorely disappointed.  Neither political party has put forward anything that even begins to address the underlying problems.  Of course, that really shouldn’t be all that surprising.  After all, politicians are essentially prostitutes who will do anything in the short-term to keep their customers happy – usually consisting of some temporary economic fix to mask the pain – but they have no long-term solutions to correct the underlying structural economic problems.

Perhaps the Tea Party on the right, and the Occupy Wall Street movement on the left, will shake up the politicians sufficiently to get them to work to solve the deeper problems, but don’t bet on it.  Just like the junkie who is looking for his next fix, a politician is focused primarily on getting elected/reelected.  The posturing politician will promise anything to get the votes, but then will renege on the promises once in office, trusting that the voters will forget the dissimulation by the next election cycle.

If what we have is the change that was promised in 2008, then it’s chump change.  By the way, that’s not a request to keep those c-notes coming out of the printers.  Inflation will not solve these problems.

For those who are either unemployed or underemployed, bankruptcy can at least get rid of the debt load and free up the limited income to cover ongoing living expenses.  Something to think about while standing in line at the (un)employment office.