Wealth and the Job Market

I’ve noticed an uptick in news coverage recently regarding the overall levels and distribution of wealth in the US. PBS Newshour, for example, recently produced a feature highlighting an increase in the disparity of this distribution, and how many Americans are unaware of this trend.

The precipitous drop in housing prices since 2008, likely, fuels this conversation as most middle class wealth is held in real estate. As homes lost value so did wealth for the average American.

This is an alarming indicator for the job market because when it comes to job searches, wealth is about more than owning stuff.

Unemployed people who possess some personal wealth can use it as a backstop for their finances while they search for work. It allows them to base their future employment decisions on long-term factors and, as a result, levels of wealth for the unemployed can indicate the vitality of an economy.

Let’s look at a hypothetical.

Imagine two bank tellers who work at the same bank in a midsize-American city, let’s call them Robert and Sara. They are alike in a number of ways, they both earn about 32,000 dollars a year, both are single parents of one child, both rent a small house, and both are 30 years old.

One key difference separates them, however. Robert holds 35,000 dollars in stocks and bonds.

Now imagine both our tellers lose their jobs.

They find themselves unemployed at the worst moment. Tens of thousands of other unemployed people in their city are competing for work at a time when most companies aren’t hiring.

Both Robert and Sara make the rounds at various banks submitting resumes and speaking with managers. But after a few weeks of scouring the banking job market they both decide to broaden their search.

Up to this point, both paid their bills through a combination of unemployment insurance and, when necessary, swiping their credit cards. They realize, however, these resources are not everlasting.

Here’s where their paths diverge.

Robert scrutinizes his finances. He determines, if he liquidates his 35,000 dollars in investments, finds a part-time (albeit low wage) job, and uses parts of his state’s safety net, he can return to school and get a degree in electrical engineering. A field of personal interest for him, and one with long-term job potential.

Sara, on the other hand, similarly examines her personal finances and determines school to not be a viable option. Without the wealth to help finance a few years of education, she determines student loans would be prohibitively large. The risk is too much particularly for a parent who is already facing a significant amount of debt.

As a result, she continues to search for work.

The point of the story is to illustrate that when examining the tiers of our economy, income isn’t everything. Wealth, especially amongst the lower half of the income spectrum, is a factor that can indicate the dynamism of an economy.