Employment Issues and Challenges in Post-Katrina New Orleans

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Document date: February 10, 2006
Released online: February 10, 2006

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This report is available in its entirety in the Portable Document Format (PDF).

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Long before the onslaught of Hurricane Katrina or the chaos of evacuation, New Orleans' social infrastructure was failing. News coverage of the overcrowded Superdome and the city's flooded streets exposed the poverty and vulnerability of many residents, especially African Americans. As New Orleans begins to rebuild, can the city avoid the mistakes of the past, instead creating more effective social support for low-income and minority residents? Innovation and experience from other U.S. cities offer promising strategies for reducing the risks of poverty and opening up opportunities for economic security and success. This essay is from an Urban Institute collection that addresses employment, affordable housing, public schools, young children's needs, health care, arts and culture, and vulnerable populations. All these essays assess the challenges facing New Orleans today and for years to come and recommend tested models for making the city's social infrastructure stronger and more equitable than it was before Katrina.

In Hurricane Katrina's aftermath, several hundred thousand former residents of New Orleans and the Gulf Coast lost their jobs. No doubt, many of these people have already or will soon find new jobs on their own, either in New Orleans or elsewhere. But others will need help managing their transitions back to the labor market. If the rebuilding of New Orleans is undergirded by sound labor market policies, many could upgrade their skills, obtain better jobs, and raise their incomes.

Many New Orleanians had trouble becoming and remaining employed before Katrina. As of 2004, the city's unemployment rate stood at nearly 12 percent, over twice the national rate. While blacks represent over two-thirds of residents of New Orleans, the overall city unemployment rate was 20 percent higher than the national unemployment rate of all black workers. Poverty rates of individuals in the city (at 23 percent) were 10 percentage points higher than the national average in 2004, and median family incomes were only two-thirds of the national average (Bureau of the Census 2005).

The precarious employment status of New Orleans residents before the storm at least partly reflected their limited educational attainment and cognitive skills (Glaeser 2005) and the concentration of jobs in lower-wage industries. For example, nearly 13 percent of workers in the city of New Orleans were employed in the relatively low-wage food and accommodations industry, compared with only 9 percent of all workers nationally. Total service jobs represented 26 percent of all jobs and paid an average of only $8.30 per hour. At least partly, these figures reflect low wages in New Orleans' tourist trade.1 As of December 2004, wage rates paid in New Orleans averaged $16.76 per hour, about 7 percent below the national average and 18 percent below the $20.39 average paid in Houston (but about 10 percent above the average paid in Mobile, Alabama). Industries such as shipping and oil and gas extraction, fixtures of the New Orleans employment scene that pay above-average wages, accounted for relatively little employment when the storm hit (Glaeser 2005).

Other factors probably reinforced the effects of poor skills and low-paying jobs for New Orleanians. For instance, racial segregation in the New Orleans metropolitan area was among the highest in the South in the 2000 Census (Frey and Myers 2005).2 Residential segregation by race is usually associated with low levels of employment and earnings among blacks (e.g., Cutler and Glaeser 1997). And rates of crime and drug abuse in New Orleans were among the nation's highest as well. Indeed, even compared to other large American cities, New Orleans was a city with declining employment and population over the past several decades.

Obviously, the labor market disadvantages that New Orleans residents experienced before Katrina are now compounded by job displacement. Typically, most workers return to employment after being involuntarily displaced from their jobs, but sometimes after long spells of joblessness and usually with a significant loss in wages. Average displaced workers lose 15 to 20 percent of prior earnings once reemployed—commonly more if they are older or less educated (e.g., Jacobson, LaLonde, and Sullivan 1993, 2005; Kletzer 1998).

But the massive displacement of workers from New Orleans is quite atypical. Huge numbers of people have lost their jobs, and much of the social and physical infrastructure on which labor markets are based—including neighborhoods (with their information networks), transportation systems for commuters, and schools—has been damaged or destroyed. And the residential displacement of up to 1.5 million people (Louisiana Recovery Authority 2005) intensifies the difficulties associated with job displacement alone.

The twin problems of labor market disadvantage and job/residential displacement pose serious challenges for former New Orleans residents, regardless of their current and future locations. Still, sensible labor market policies might alleviate some of the recent losses workers have suffered and perhaps ultimately improve their pre-Katrina job status. The opportunities resulting from reconstruction may be especially valuable in upgrading many workers' skills. Indeed, successful labor market interventions to help former and returning New Orleans workers could spur attempts to remedy labor market displacement or disadvantages.

Below we review some of the short- and longer-term challenges and uncertainties involved in tackling labor market issues in rebuilding New Orleans. These are presented along with some policy proposals for addressing them. The needs of those returning to New Orleans are considered, along with those of working-age adults who chose to remain or who chose to go elsewhere.

We will argue that, for fairly modest public expenditures, the labor market disadvantages of many current and former residents can be addressed, and their long-term employment outcomes improved.

Notes from this section of the report

1. The percentages of workers in these industries in New Orleans and nationally in 2003 come from the Bureau of the Census (2005). Other figures come from the Bureau of Labor Statistics' National Compensation Survey (2005b).

2. According to Frey and Myers, the "dissimilarity index" that measures local segregation was higher only in Miami and Jackson among major Southern metropolitan areas in 2000; and the increase between 1990 and 2000 in New Orleans was among the 10 largest increases observed for major U.S. metropolitan areas in that time.

Note: This report is available in its entirety in the Portable Document Format (PDF).

Topics/Tags: | Cities and Neighborhoods | Employment

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