Why is the unemployment rate staying so high, years after the recession officially ended? If we knew the answer to this question, we’d have a fighting chance at addressing the problem.

In our national economy of 300 million people, it’s not easy to tease out what’s keeping the unemployment rate so high so long. But one just-published study caught my eye because it gives an answer that seems to make sense. It takes a creative look at the connection between high household debt and the unemployment rate.

Now it may sound like common sense to say that if the bottom drops out of a population’s most valuable commodity—their homes—so that their debts exceed their assets, these people are either going to have much less money to spend or be less comfortable about spending money they have. So the goods and services they are no longer buying means unemployment for whoever was providing those goods and services.

But some argue that there are other more important causes of high unemployment. One example is the “argument that businesses are holding back hiring because of regulatory or financial uncertainty.” Another one is that shifts in the global market require unemployed people to retrain, keeping unemployment high while they do so. All of these theories seem to make some sense, but the point of economics is to figure out which of these is really the cause. Or if all three contribute to unemployment, economists are supposed to calculate how much each one does.

So this study determines that high household debt, especially mortgage debt, is the primary reason for unemployment, causing at least 65% of the current unemployment.

Before the start of the Great Recession there was huge variation across the country in the amount of household debt, tending to be highest where the housing prices had climbed the most. For example, the household debt-to-income ratio in California was 4.7 while in Texas was only 2.0. This study looked closely at the differences in employment losses in high- and low-debt counties, distinguishing between losses in employment sectors primarily catering to the local population—such as local restaurants, personal services—and those with a national base—such as manufacturing, call centers. Unemployment rates in the local employment sectors were much worse in the high-debt counties than the low-debt ones, whereas unemployment rates in the nation-based employment sectors were similar in both high-debt and low-debt counties.

Although this may sound somewhat commonsensical, these results did not support other possible justifications for the persistent high unemployment. The study results did not support that jobs were not being created because of governmental or economic uncertainty (think Washington deficit reduction stalemate or the Eurozone crisis) or because of a retraining time gap.

Instead “weak household balance sheets and the resulting  … demand shock [that is, overleveraged consumers not having or spending money] are the main reasons for historically high unemployment in the U.S. economy.”

This seems to mean that high unemployment will be with us as long as a large percentage of homeowners are underwater on their homes. Is anybody in Washington even working on this problem?

U.S. corporations are making record profits quarter after quarter, yet unemployment seems to be stuck at a devastatingly high rate. Why aren’t these financially flush big businesses hiring?

I’ve been writing a string of blogs about how tax debts are dealt with in bankruptcy, and I’ll get back to that after today. This is the time of year when the nation’s major corporations report their 3rd quarterly profits, and so I found myself scratching my head about the disconnect between their huge profits and their lack of hiring. So I read a number of news stories and editorials and this is what I got out of them:

1.  Big businesses have gotten to be more “productive,” in the sense of producing more goods and services with less labor. That has happened partly through investments in labor-saving technology and partly by requiring employees to work harder and faster for the same pay. With the cut-throat labor market, companies don’t need to increase salaries to retain or replace their employees.

2.  Profits have increased because a larger percentage of sales for large U.S. corporations have been overseas. Around 40 per cent of their profits are from foreign sales. For many companies, sales are growing modestly in the U.S. while growing much faster elsewhere, especially in the “emerging markets” of China, India, and South America.  

3.  Relatively strong overseas sales come with job growth overseas instead of here. According to the U.S. Commerce Department, in the past decade, U.S.-based multi-national corporations added 2.4 million jobs outside the country while cutting 2.4 million jobs here. Jobs naturally grow where sales are growing–someone has to take customer orders at the 3,000+ KFCs in China! But of course there’s also increased foreign outsourcing of work that used to be done here, from manufacturing to computer programming.

4. Normally when businesses are more productive, resulting in more profits, they tend to expand, thus creating more employment opportunities. But this has not been happening for three reasons.

a. With the double-whammy of very high unemployment and loss of home values, U.S. consumers either don’t have the means or the attitude to spend money, so companies are leery about expanding to increase production.

b. The international business environment—particularly the European sovereign debt crises in Greece, Italy and elsewhere—is making big business cautious.

c. Political gridlock in Washington, D.C. makes business planning very difficult. With the Congressional deficit-reduction “super committee” scheduled to issue its report very shortly, big businesses have been sitting tight to see if this “super committee” will come up with its momentous compromise, and what it’ll consist of.

The bottom line: big businesses don’t need to hire to produce the goods and services they are producing, at least within the U.S., and they don’t want to expand and hire here because of lackluster consumer demand and high uncertainty in the world economy and in domestic politics.