Long Road to Job Recovery

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Hmmm... Just saw this article on MSNBC, detailing how it will likely take several years for the unemployment rate to get back to what it was in early 2007, before the recession started.

I know we didn't get to 10% unemployment (we're not quite there yet, but it is expected by the end of the year) overnight, and I didn't expect to make up all those lost jobs in a few months, but this report is saying it will take several years.

The numbers are staggering. Based on some numbers presented in the article, and some math I've done on my own, here's what this article is basically saying: The US needs to create about 125,000 new jobs every month, just to keep up with the growing work force. Even when economic times are good, the best job creation rates we had during the Bush years was about 400,000 jobs per month.

However, as everyone knows, we've been shedding jobs by the hundreds of thousands per month. Since the first 125,000 per month are needed to just keep the unemployment rate stable, that means that assuming 400,000 jobs per month represents a high water mark, then the best case scenario is a net gain of 28,000 jobs per month. Since we've lost a total of 7 million jobs since 2007, we're looking at something along the lines of six to eight years of steady job growth to get back to where we were. [edit] it vaires by state - they added a chart to the link showing how long each state will take to get back to where they were. There are some states that predict after 2015 for a full recovery, and most states are in the 2012-2014 range. [/edit]

I was under the mistaken belief that it would take about the same amount of time to recover the jobs as the rate at which jobs were lost (so about 2 years). But those expectations are unrealistic. Even if 40,000 per month does not represent a maximum, placing job growth much higher than that is equally unrealistic. Even if there's an alternative energy revolution, and job growth goes up to 500,000 per month, that means we're STILL looking at between 5 and 6 years for a recovery.

This just sucks. I never thought the job recovery would likely take the better part of a decade to accomplish. While my own estimate was greatly off, I don't think other people would have thought it would take the better part of a decade either.

 

Takes longer to build than it does to destroy. Many of the jobs lost though were not truly lost. Do not know the English term but were not a lot of them just "warnings" like we will probably have to let you go and such? When things start to look up won't a lot of those announced discharges be cancelled?

Also how does the US report their unemployment numbers? I have heard they only report those actively seeking or somesuch and not everyone not working. 10% actually doesnt seem that high for a recession. I think the normal unemployment rate here is around 7% or so and that counts everyone not employed or in some kind of school.

 

Part of the problem as I see it is that many of the job losses are permanent losses. Take the auto industry, for example. GM and Chrysler are not likely to ever get back to the employment levels they had a couple of years ago. And the laid-off workers are going to have a hard time finding employment elsewhere, unless their skills are transferable to other industries.

Having said that, the time line is pretty surprising, at least to me.

 

I wish I was looking at those figures for my recovery .

Aldeth, if you think those figures are staggering I have bad news for you. You've taken down the figures wrong. It's 125,000 jobs needed a month and 400,000 was the old highpoint .

@ Joacquin. I don't think the US's measure is unusual. If you were to add in kids and pensioners and stuff the rate would obviously way over 7%. I think most countries exclude housewives and layabouts as the rate is measuring the ability to provide jobs to those who want them. You'd have to look at participation rates to start getting a feel for the % of the whole population who have a job.

 

Keep in mind also that the Unemployment rates tend to lag quite a bit behind GDP and other factors. Emperically it has been shown that employment levels lag behind the general economic trend. This means that when the economy takes a dive, it'll take the employment levels a while to fall. Likewise, when the economy picks up, employment will be following after a period of time.

Jump on wikipedia and look up Sticky Wages (or Sticky prices) and I'm sure it'll have quite a good description of why this happens.

 

Rotku! What a legend!

Rotku is right. Unemployment lags behind most other economic indicators so will be the last thing that gets better. It doesn't take very long to cut jobs but it can take forever to get them back again, especially if you've done things like close down the factory they used to work in. You pretty much have to rebuild and restore the factory in order to be able to re-employ the people.

As Splunge has said, many of the job losses are permanent. They won't be back because they never should have been there in the first place - they were in inefficient companies and industries propped up by artificial devices or concealed by over-exuberance in other areas. In order to restore job numbers, you'll actually have to create and establish viable industries into which to employ people. Not easy. At all.

 

The English term is laid off. And you're right that lots of people who lost their jobs were laid off and not fired outright. However, as others have pointed out, a lot of those layoffs are permanent. The auto industry isn't coming back, and I bet a whole bunch of people in the housing market are also permanently gone. We still need realtors, real estate agents and mortgage brokers of course, but not nearly the amount we needed during the housing bubble. There is no obligation for a company to take any of those workers back after a certain point in time. And those are just obvioius, industry-wide losses. It doesn't include all of the business (some not so small) that have gone bankrupt and out of business in the last two years. If the business isn't coming back, then obviously they aren't rehiring workers either.

Most people who are laid off and later rehired are people who work in seasonal industries. For example, if you work for the skiing industry, there's a pretty good chance that you're laid off right now. Similarly, people who work in construction frequently get laid off from December-March, as snow makes construction very difficult. Same thing for people who work on golf courses, landscaping, etc.

You're right that it's not the entire adult population. It doesn't count people who are retired, students, or housewives. Basically, to be considered unemployed, you have to want to get a job. I think the official definition of unemployed is anyone who is at least 16 years old, is not a full-time student, and is seeking employment. So to take my wife's parents as an example, they're both retired, but since neither of them are looking for a job, they are not considered unemployed.

The unemployment rate is the number of unemployed people divided by the unemployed + the employed. So while they don't count everyone who doesn't have a job as unemployed, they don't count everyone in the denominator either. Like Deise said, if the unemployment rate was everyone not working divided by everyone living in a country, the rate would probably be close to 50%, because it would include nearly everyone under 18 and over 65. (I imagine both those groups plus the 10% who actually are unemployed would have to be close to half the population of the US.)

There is another factor that is rarely reported and it is called "underemploymnet". These are people who have had thier hours cut and are working part-time, even though they want to find full time work. Since they have a job, they aren't considered unemployed, but obviously these people are also earning less money that they used to be. The underemployment rate is currently around 14%. So nearly 1 in 4 Americans are either out of work entirely, or are working reduced hours.

We just had another round of layoffs this week at work. Second time this year, and so far, I've survived. I think I'm fortunate of where I'm at in my career. I've been doing this job long enough that I know what I'm doing and can do it well, but I haven't been doing it for so long that I'm pulling in a huge income. Judging by the people who have been let go, it appears that I'm the type of person the company is seeking to keep. Most of the layoffs have been people in their 50s and 60s or workers still in their 20s.

That's definitely true. It's also explains why the unemployment rate is expected to continue to rise through the end of the year, even though the economic numbers in the housing market, profit numbers at banks, and the stock market are starting to look up. Unemployment is one of the last areas to see the effects of a recession, and one of the last areas to recover from it.

EDIT: WTF? The labor department released it's figures for July, and while July had fewer job losses than any other month this year, there was a net LOSS in jobs. Yet the article says the jobless rate went down from 9.5% to 9.4%. If you loss jobs - even a smaller than expected amount, shouldn't the unemployment rate go UP? Help a brother out here... linky

 

No idea of the actual reason but I'd guess that it could be that the denominator has moved also? If there's more people in the labour force (this should be so, the US is a young and growing country) than the % unemployed will fall for the same level of umemployment, even if none of those previously unemployed got jobs. Basically the 'unemployment rate' of those who've just declared themselves as looking for a job is lower than the existing one and so drags it down with it. Does that make sense as I've explained it.

 

Not really - why both numbers certainly went up, we know that the numerator increased more. We already know that about 125,000 people per month enter the work force (thanks, by the way, for your correction - I fixed my initial post). However, they said nearly 250,000 people lost thier jobs. So we can assume that the numerator went up over 100,000 more than the denominator.

 

Not quite. You're comparing the actual July losses to the average monthly increase in the labour force. That's dangerous, the actual monthly figure will vary, July could be different from the average. If school/college leavers hit the labour force in July the figure could be way above the average.

I don't know the real reason. It does look strange but I don't think it's necessarily that perverse that the unemplyment % could go down while the numbers of unemployed goes up.

Another thing I just noticed. The article isn't clear on whether the jobs lost figure is net of new jobs created. I would assume so but it may not be. So there could have been more jobs than normal created in July. Temporary seasonal ones like you described earlier could account for that.

 

There are a lot of reasons, really. First of all, when your unemployment benefits run out, you fall off the radar and can no longer be effectively counted -- even though you are still looking for a job. Likewise, people who don't qualify for unemployment in the first place also can't be effectively counted. People who give up their job searches and instead to go to school in order to learn more marketable skills aren't counted, either -- and when they begin their job searches anew, they probably won't qualify for unemployment then, either (because they went without weren't looking for work during their schooling). People who give up their job searches and instead retire early also aren't counted. I'm sure there are other reasons, but those are, I think, the main ones. There has long been criticism that our unemployment numbers aren't telling the whole story for reasons like this.

 

Yeah, it might take sctructural adjustments to get back to the unemployment rate of 2007 which was basically the top of the economic cycle. Personally I'd even go as far as hope for unemployment not to rise up too quickly, because that only means that whatever stimulus has been used has been overeffective and the economy is overheating once again. I find myself worrying about an inflationary kickback to the recession. The means of fighting of unemployment and deflation might very well have been a bit excessive, especially in the US but I worry the same has been done in Finland as well. I suppose time will tell how it really is. So a slow recovery might indeed be a good thing, especially as I've heard (from a few Finnish economists at the ministery of finance) that there are further subprime mortgage bombs awaiting in late 2010 and 2012, if the credit markets are once again at full speed things might get ugly again and we might see a period of stagflation.

Traditionally the US economy has been more dynamic and less sticky with employment than Europe so I guess when the economic rise begins the unemployment will not lag all that much behind.

 

I also just logged on to 538, where they mention that another reason for the decrease in unemployment is that the May and June unemployment numbers have been adjusted downward. They didn't say by how much in the article, but naturally if you overcounted intially, it may offset the losses of the past month. Linky.

 

Yes, going with Mororoth's point about not wanting unemployment to not fall too quickly is that in economics there's a 'right' level of unemployment and it will never be zero. Basically if you go below this level then you're just creating problems in the economy that will eventually burst and push unemployment up more. That's probably after happening in quite a few countries, including the US. So it would probably be bad if unemployment does reach such lows again.

 

Ok, I am pretty sure that in Europe you count unemployment as everyone between 16 and 65 who is not working or in school. So no need to be actively seeking work, housewives/men, layabouts, bums and whatnot are counted among the unemployed iirc.

 

I find it hard to believe that unemployment comes in at around 5% to 10% for most rich countries normally if you're counting housewives. I know there's less of them these days but they still must be a few % points on their own.

They are easy to manipulate though. A big favourite of the British is to move the layabouts who've no intention of getting a job into 'training.' The courses are a few hours, they hardly ever go to them and they're completely useless for any real job. But people in education aren't counted as unemployed. The number of people classed as disabled also grows enormously all the time.

 

Eurostat has the following criteria for unemployed:

• Must be between 15-74;
• Must have looked for work within the last 4 weeks;
• Must be willing to start work within the next 2 weeks if found.

Most countries, to my understanding follow similar measures.

Of course, when it comes to unemployment you have to realize that there are many different sorts. The type that is worrying is Long Term unemployment. Once again, different ways of defining, but generally people who have been unemployed for a long time. Other sorts - such as seasonal (people in industries like Fruit Picking, Snow, etc) [on that note, you'll find most unemployment data you see is Seasonally Adjusted to remove this factor], frictional (time off when moving between jobs), and voluntary unemployment - are generally less worrying as they are only temporary (or voluntary) cases.

Here it's the sickness benefit. More unemployed you put on it, the more disappear from the unemployed statistic. There was a stage where the New Zealand Prime Minister claimed to know the names of all the unemployed in the country (think there were twelve or something at that stage). Of course, only through careful statistic manipulation could you ever get to that state. There are lies, damn lies and statistics.

Most Labour Economic papers I've read generally class Full Employment somewhere between around 2%-6%. You'll get the occasional exception who may argue that 0% is Full Employment, but they're certainly the exception. However, I'm not sure what you mean there about unemployment been low in countries like the US before this depression. I don't think US ever got much below 5% - which is probably about average for the post-War period. Not sure about Europe though...

 

2-6% is somewhat overoptimistic in my opinion considering that some european countries were close to six percent at the top of the cycle and go up towards ten percent or more during a downturn. Very rarely has unemployment around here been under six percent unless the economy has been seriously overheating. I think our NAIRU (non accelerating inflation rate of unemployment) would stand somewhere between 6-8%. The few countries I can think can reach a natrual unemployment of 2-6% are Denmark, Luxembourg and the Netherlands.

EDIT: Now I got myself confused with the terminology. Full employment is probably not the same as the natural level of unemployment, however I'm not quite sure of the difference at the moment.

EDIT2: Yeah, apparently it's the same.

 

I don't know. Like I said, I'm not aware of what the situation in Europe is like. However I know in both the US and in New Zealand 2-6 makes perfect sense.

March Quarter 2009, Unemployment in New Zealand reaches 7 year high, as it breaks the 5% bar.
Also post War levels in the US, while not quite the same as New Zealand, certainly do reach well below that 6% mark.



[Edit]
Sorry, correction to the above. Seems Thursday it was announced that during the June quarter New Zealand unemployment increased to 6%.

[Edit Mark II]
Best I could find historically for New Zealand is below. Unfortunately it seems to only cover from the start of the liberal market reformations, which is the cause of the large unemployment in the 80s-> early 90s. Then there was the Asian financial crisis which hit in 1997, just after the effects from the reforms were starting to ease off... So not really an accurate representation, but the best I could find.