US jobseekers face bleak Christmas as unemployment rises

• Experts say rate is yet to peak
• President Obama's $787bn jobs package has limited impact

* Andrew Clark, New York
* guardian.co.uk, Sunday 20 December 2009 15.00 GMT

In his stylish, sleek and sparkling white Manhattan salon, hairdresser Cristiano Cora is trying to do his bit for those less fortunate. A top-of-the-range snipper, he usually charges $300 for a cut. But every Tuesday morning, at his minimalist Greenwich Village studio, unemployed Americans can get a spruced up coiffure for free.

In a national crisis, Caro reasons, everybody should pitch in: "After 9/11, I was very surprised – people came together. Now people aren't helping each other as much. We need to help the people who need help."

A decent cut leaves job seekers feeling that bit more confident. "If somebody feels good, feels pretty and looks good, their attitude is better." Plus, he says, there's the therapeutic side, too: "To be a hairdresser isn't just making people look good. We talk to them as human beings. People have so much inside them, they want to talk."

A seemingly unstoppable epidemic of joblessness has swept across America over the past 24 months. The US unemployment rate, which began 2008 at 4.9%, has risen to 10% and despite a slight drop of 0.2 percentage points last month, many economists believe it is yet to peak. More than seven million jobs have evaporated since the recession began and President Barack Obama's newly minted administration is facing increasingly vocal criticism for underestimating the problem.

America's unemployment challenge is surging up the political agenda. The rate of joblessness in the US is significantly worse than in overseas economies which, in GDP terms, have suffered a deeper recession – although definitions may vary slightly, Britain's unemployment rate is 7.9%, Germany's is 7.5%, the European Union's is 9.3% and Japan's is 5.2%. The number of jobs lost in the US during 2009 surpasses any other year since the second world war. And in worst hit pockets, joblessness has reached apocalyptic proportions – scorched by the chronic problems of the motor industry, Detroit's unemployment by some measures, has reached 45%. In an effort to ease the pain, Congress has extended the duration of unemployment benefits, which typically expired after a year or so, to as long as 99 weeks.

A $787bn economic stimulus package intended to kick-start job creation has had only limited impact. The White House, which predicted unemployment would top out at 8%, is under pressure – a recent Gallup poll for USA Today found 55% of Americans disapprove of Obama's handling of the jobs crisis, putting employment equal with Afghanistan as the president's worst policy area.

"The media talks about the stockmarket recovering kind of as if it's a baseball team scoring – but it doesn't really make much difference to peoples' lives," says Dean Baker, co-director of the Centre for Economic and Policy Research in Washington, who warns that Democrats will get stung in November's mid-term Congressional elections unless employment improves. "What's really going to matter when people go to vote in November is whether they're working, whether they're getting a decent wage."

Left-leaning experts suggest that the surge in joblessness is a symptom of America's broader laissez-faire economic approach. Americans are typically on short notice periods, get less union protection and can be fired more easily than in Europe. Baker points out that in Germany, the government has provided incentives for companies to hang onto employees, albeit on shorter hours: "We're experiencing a downturn with double-digit unemployment. The Germans are experiencing a downturn with a shorter working week and longer vacations."

Some argue that gloomy predictions prompted American employers to cut jobs unnecessarily sharply at the height of the financial crisis, in anticipation of an epochal depression that proved to be far less dramatic. The former Federal Reserve chairman, Alan Greenspan, argued last week that businesses were "very frightened" and are now straining to operate with a skeleton workforce: "We have a level of employment at this stage which is barely adequate to staff the level of output."

This view is echoed by Barclays Capital's chief US economist, Dean Maki, who says there was an "over-reaction" in job cuts by employers, and that the next significant move in the unemployment rate will be down.

"It relates back to the financial crisis last fall, when we had political and financial leaders talking about the possibility of another Great Depression," says Maki. "There was a palpable fear of an outcome that was much worse than what turned out to be the case."

But that does not mean jobs will recover thick and fast. Signs of a return to growth are likely to encourage "fringe" job-seekers, such as part-time employees and stay-at-home parents, back into the search for full-time work. Economists say that in normal times, it takes an addition of 100,000 jobs per month just to keep the unemployment rate steady, to compensate for a steady increase in the workforce as the population grows and people graduate from college.

Brian Bethune, chief US financial economist at IHS Global Insight, expects unemployment to edge slightly higher in the "low 10% range" with further job losses recorded for several months: "We don't expect any near-term turnaround in hiring. We'll probably see a few more months of negative numbers."

He predicts that president Obama's stimulus package, designed to fund "shovel ready" projects in public infrastructure, will only end up creating 2.5m jobs, rather than the 3.5m projected by the government. With hindsight, the White House may now regret opting against a bigger stimulus – the chairwoman of Obama's own council of economic advisers, Christina Romer, is known to have favoured a more ambitious $1.2tn injection but lost out to other voices within the administration, including Larry Summers, a Clinton-era veteran.

On the ground, the picture remains bleak. A New York Times poll found more than half of unemployed Americans have cut back on doctors' visits due to lack of funds, 55% have trouble sleeping and two-thirds consider themselves stressed. Among jobless parents, 38% have seen a change in their childrens' behaviour as a result of straightened financial circumstances.

John Dodds, director of the Philadelphia Unemployment Project, a community support group, says things are as bad as he has seen them in his 34 years of working with jobless people: "There seems to be no end to the layoffs. And looking for work in an environment where people are still being laid off is very difficult."

One of his clients, Cameron Hurley, is a 46-year-old separated father of three teenage children who lost his job as a computer programmer some 13 months ago: "It was a Wednesday in November. The chief information officer came in, sat three of us down and told us that Friday would be our last day."

He worries about maintaining support payments for his children, and about paying for healthcare.

"As a programmer, I wasn't hurting for money. I kept it simple, I didn't have a lot of bills to pay and I did have some cushion. Now that's all gone," says Hurley. "It's just a mess."

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