Severe recession would mean 5.8 million more jobs lost, report says

WASHINGTON — Up to 5.8 million additional 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 (CEPR).

The report comes on the heels of the government's news on Friday that U.S. employers are already cutting back on hiring. January marks the first monthly contraction in nonfarm payrolls in four years — data that may be the smoking gun showing that the economy has entered a recession.

Lawmakers are working on a stimulus plan, which could be passed in coming weeks, that they hope will boost the economy and stave off recession. A recession technically 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, CEPR projects an additional 3.2 million unemployed by 2010. At the end of last year, there were about 7 million unemployed. CEPR, which applied trends from recent recessions to create a forecast for a 2008 recession, also 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, a senior economist with CEPR 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, while 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 another 4.7 million would be 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.

Schmitt said there should be more focus on the ill effects of a recession. The CEPR report found that at least 4 million additional 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 and makes you want your politician to do something," she said.

She added that states experience a "double whammy" during recessions when it comes to health care — states collect less tax revenue as consumers pull back spending and home values decline, even as the ranks of those relying on government support swells.

While experts say health care tends to be a more resilient industry, 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."

Schmitt noted that some effects from a recession are hard to quantify, and economic hardships spill over into other social concerns, such as family happiness.

Downturns in the economy can harm psychological health, said Jason Furman, a senior fellow at the Brookings Institution.

"Being unemployed is not something that people want and it's not something that makes people happy," he said.