A so called “jobless recovery” likely means very bad news for charitable giving. Joblessness that is predicted to extend well into the economic recovery along with increased rates of saving fueled in part by economic insecurity result in less disposable income, and that likely will or is already showing up in declining donations by individuals.
President Barack Obama called it right during his August 1st weekly address to the nation: the recovery won’t be a recovery” as long as we keep losing jobs.” With increasing prospects of what economists call a “jobless recovery,” confirmed by no less than Federal Reserve Chairman Ben Bernanke, the pain suffered by most Americans will be prolonged even after corporate profits and stock market values climb. Some of that pain will be felt as the most generous of Americans, middle class working people, will find themselves hard-strapped to maintain their charitable generosity.
Official and Unofficial Unemployment Rates
Many economists and the Obama Administration have been caught largely unaware by the huge increase in unemployment (the rate jumped to 9.5 percent in June). That is the official headline unemployment rate, called the U-3 measure. But if you add “discouraged workers” and those working part-time because they can’t find full-time work it creates a combined unemployment and underemployment rate (called U-6). In June 2009, this U-6 measure was already 16.5 percent. But by many estimates, the official U-3 unemployment rate will also drift into double-digit territory later this year and could stay there through 2010 and into 2011, even as the economy begins to rebound. The news of a slight drop in the unemployment rate to 9.4 percent in July does not change the dynamic: rather than pointing to an employment reversal, economists ascribe the small reduction in unemployment to 400,000 unemployed persons having given up the search for jobs and left the labor market.
Neither the U-3 nor the U-6 measures, by the way, includes the category of workers working far below their skill and education levels. For example, in the first four months of 2009, less than half of the nation’s 4 million college graduates aged 25 or younger were working in jobs where a college degree was required, a problem particularly centered among minorities: “less than 30 percent of Asian female grads, 32 percent of Hispanic male grads and just over 35 percent of young black male grads working in jobs that require a bachelor’s degree.” The problem of national aggregations misses how horrendous employment conditions are in some parts of the nation. For example, unemployment in Detroit according to the state of Michigan, was 24.7 percent in May, up 2 percent from April and 10 percent from a year earlier (as opposed to the Bureau of Labor Statistics estimates of 16.0 percent unemployment for the Detroit-Livonia-Dearborn metropolitan area and 14.1 percent for the nearby Warren-Troy-Farmington Hills metropolitan area). Add in the underemployed and discouraged workers to the headline unemployment rates in places like Detroit, the result is not recession-level joblessness, but a rate that is very nearly at a 30 percent or depression level.
Jobless Economic Recoveries
While some economists cite recent evidence of a recovery, this may occur without necessarily reemploying in a timely way the millions who have been laid off. A jobless recovery is not a new phenomenon. Articles in Forbes (done by Oxford Analytica) and the Economist cite some issues that might point to a very slow recovery as measured by putting people to work in real jobs. Both the Economist and Forbes note how long it took for jobs to catch up to the “recovery” of the economy after the dot.com bust in 2001. These articles cite a number of potential factors that might make this recovery slow in terms of job creation and hiring, but the most compelling one to us has been cited in many articles, that we are facing a problem of adjustment to structural unemployment, and that’s not simply a matter of waiting for consumers to start buying and sop up excess inventory.
As put by an analyst in the Library of Economics: “My thesis is that unemployment is more persistent when the layoffs come from structural change rather than from excess inventories. With excess inventories, once the excess has been absorbed you can go back to work at your exact same job. On the other hand, when firms and industries permanently shrink, you have to find a new job, and possibly even an entirely new occupation. It is rare for people to have the capacity to do that, and it takes quite a bit of time when they do.”
Charitable Giving as Jobs are Lost
It is naïve to imagine that unemployment and underemployment will not take their toll in charitable donations and, in fact, we may already be seeing it. The Index of National Fundraising Performance, published by Target Analytics, reported declines in charitable donation revenue per donor for the first quarter of 2009 (down 2.1 percent compared to the same period in 2008).
This drop is notable because this is the first time this has happened since Target Analytics began doing these studies in 2002. Generally, when the number of donors dips, increases in the sizes of individual donations tend to stabilize charitable revenue flows—but not now. According to the Index, only one-third of surveyed nonprofits showed revenue-per-donor increases during this period. Indiana University’s Philanthropic Giving Index reports fundraisers’ charitable fundraising confidence is “at an all-time low [PDF] since its inception in 1998, having dropped 27% since December of 2007 and 21.7% alone since July 2008.
Some observers think that this downward trend will be hard to shake. Citing the cutbacks in United Way workplace donations due to layoffs, job furloughs, and the “general apprehension” of consumers, Paul Castro of Jewish Family Service in Los Angeles told the Cohen Report, “I think when the economy begins to recover, some of this charitable pull back will remain permanently.”
Castro is certainly accurate on his take about workplace giving to United Ways, with reports of missed targets and declines reported in the last month alone in geographically diverse recent campaigns in Buffalo, New York; Kokomo, Indiana (no surprise that Kokomo had the largest increase in unemployment between June 2008 and June 2009 according to the Bureau of Labor Statistics); Greeley, Colorado; Muskegon, Michigan; Hilton Head, South Carolina; metro Chicago, Illinois; Atlanta, Georgia; and Dayton, Ohio, just to name a few.
In statements to the Cohen Report, many people such as Bob Ottenhoff, the CEO of GuideStar, and Lew Feldstein, President of the New Hampshire Charitable Foundation, suggest that the “psychological” impact of the recession is, like job losses, a significant factor in determining when and how charitable giving will rebound. According to Ottenhoff, “it will take increased employment and a healthy stock market . . . [to] help consumer confidence,” the combination necessary for reviving individual charitable giving.
Implications for Charitable Giving in 2009, 2010, and Beyond
Despite these hopeful predictions, we believe that the depth and trajectory of the curve of joblessness in this recovery-will lead to a different pattern of individual charitable giving by people whose ability to donate depends on their paychecks, not their Wall Street investments or tax exempt endowments. This is why:
- Unemployment and underemployment are rising: Although by some indicators, such as a slower reduction of Gross Domestic Product than predicted, the recovery may be occurring, the job lag is significant. With unemployment predicted to surpass 10 percent later this year or early in 2010 and perhaps last throughout the year, real unemployment (including those forced to take part-time work and those discouraged from looking for work at all) will skyrocket. Everyone knows someone who is unemployed, laid off, or about to lose a job. Lacking confidence in their future employment prospects, many Americans are saving money rather than spending it on consumer items or charitable giving, evidenced by the personal savings rate at 4.6 percent in June 2009 compared to between 0.8 and 1.8 two years ago. The practical and psychological impacts of the worsening employment picture for working people have consequences for spending patterns, including charitable giving.
- The second-worst economic downturn in modern times: This is a worse recession than nearly anyone wants to acknowledge, certainly the worst since the Great Depression, and twice as bad as analysts have predicted. Even when unemployment starts to fall below 10 percent toward the historical “full employment” rate of 5 percent or below, it will take several years of significant job growth (127,000 new jobs a month to keep up with population growth, plus additional job creation to replace the 4.5 million that will probably be lost due to the recession overall). According to CNBC, “the more people out of work—or worried about their job security—the less they’re likely to spend to boost the economic growth,” and in our opinion, to revive their charitable giving.
- Unemployment insurance benefits running out: Families facing job temporary and permanent layoffs are likely to be incurring increasing costs as their periods of unemployment get longer and the availability of unemployment benefits disappear. In the latest (July 30th) Department of Labor calculations of initial filings for unemployment benefits, for the week of July 25th—the week—the seasonally adjusted number of initial claims was 584,000, up 25,000 from the week of July 18th, up 60,000 from the week of July 11th, up 142,000 from a year earlier. Extended benefits are available to unemployed persons in 36 states and the District of Columbia, in part with funding made available through the stimulus. But even so, the New York Times reports that 1.5 million exhaust all of their benefits by the end of the year, 650,000 by the end of September, despite 79 weeks of eligibility, the longest since the program was created during FDR’s New Deal. For scores of people in West Virginia, South Carolina, Rhode Island, and other states, that reality is now.
When the economy recovers, whatever that means in this recession, corporate profits will eventually pick up, foundation assets will slowly replenish, and the wealthiest sliver of this nation will find themselves with new amounts of disposable cash to devote to charitable giving. But remember, most nonprofits are pretty tiny groups, more than 90 percent with total revenues below $1 million, typically not in line for grants from these institutions and people of wealth. For nonprofits whose charitable donors are the historically generous working people of this nation, particularly community-based groups, a “jobless recovery” recovery should be a big concern.