Housing and stock crashes add to job woes

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NEW YORK (CNNMoney.com) -- If you want to know why the current spike in unemployment is as painful as it is, look no further than the problems in the housing and stock markets.

The bursting of the real estate bubble and the 57% drop in the value of S&P 500 from its peak has wiped out trillions of dollars in household wealth, and with it, the savings that many of the newly unemployed might have fallen back on.

Arpitha Bykere, lead analyst at the economic research firm RGE Monitor, said the continued rise in the size of the nation's labor force is a sign that many unemployed workers have no choice than to keep looking for work.

Typically, when the economy takes a sharp turn lower, the size of the labor force shrinks as some of the unemployed go back to school to train for a new career, decide to retire or just stop looking for a job until the market improves. That's not the case in this recession.

"[People] are willing to work for a few hours for lower wages," Bykere said.

Dean Baker, co-founder of the Center for Economic and Policy Research, added that older workers are now far more likely to stay employed in this market. And if they don't have a job, they are more likely to keep looking for new jobs rather than retire.

The unemployment rate for people at least 65 years old has doubled in the last year to 6.8%, the highest rate in the 60 years that the Labor Department has tracked that reading. In addition, about 16% of those age 65 and over were employed in 2008, the highest annual figure in 38 years.

Baker said the damage done to 401(k) retirement plans is likely part of the motivation to keep working or look for a new job.

Heidi Shierholz, economist with the Economic Policy Institute, agreed that the stock market decline is forcing people to keep working but that the drop in home prices has been even more of a factor.

When housing prices were on the rise during the bubble days, home equity lines of credit had become almost like a second or third wage earner for many families. With that source of funds now cut off, the loss of a job has caused even more trouble for consumers, Shierholz said.

"For most Americans, if they had wealth, it's been in their homes. And they've seen that source of wealth get wiped out," she said.