The phrase, "jobless recovery" is gaining traction in Washington these days, as the stock market has turned decidedly bullish, home sales are no longer tanking, at least not at last year’s rates, corporate profits are materializing and yet the number of out of work Americans continues to rise.
The Federal Reserve Board of San Francisco launched the talk by issuing an Economic Letter in early June that began as follows:
"Although the pace of layoffs appears to be subsiding and the overall economy is showing hints of stabilization, most forecasters expect unemployment to continue to increase in coming months and to recede only gradually as recovery takes hold."
Let us hope the Fed is wrong, but developments since early June certainly point to unemployment increasing even as corporate profits pick up. Now the question is, if we are in the midst of a jobless recovery, which prior recession offers the best model for the future, and how long until we start to see companies create new jobs?
We’ve gone through at least four recessions during the past three decades. Some recoveries created jobs immediately. Others took much longer. The recessions of 1973-75 and 1981-82, each at least two years long and pretty deep, were followed by rapid job creation. According to the Fed, companies decided to spend more and create openings coming out of these two recessions some six months after the peak month for job losses. Ironically, the opposite was true for the later, shorter and less virulent recessions of 1990-91 and 2001. Although fewer jobs were lost, some workers spent years trying to get back into the workforce at salaries and positions comparable to those they had lost.
The Fed letter predicts this recession will unfortunately follow the path of the later, not earlier recessions in terms of job creation, "During the current recession, both the inflow (the pace at which workers become unemployed) and outflow (the pace at which people leave the unemployment rolls) rates have shifted significantly, with high levels of firing and low levels of hiring, similar to what was observed in the 1970s and 1980s. We are currently at a historically low outflow rate, meaning that the unemployed find it very difficult to get work and average unemployment spells are getting much longer. At the same time, the recent increase in the inflow rate is comparable to what was observed in the 1970s and 1980s. These factors combined are creating especially weak labor market conditions."
I would argue this is to be expected, due to a number of factors, all of which point to increased instability in the American labor force over time. The less educated the worker, the fewer employment options she/he is going to find.
The first factor is competition. Recent immigrants and their children are swelling the ranks of job-seekers so that the number of applicants per job is many times what it would have been coming out of earlier recessions. USA Today reported three years ago: "The biggest driver of (population) growth is immigration — legal and illegal. About 53 percent of the 100 million extra Americans (since 1967) are recent immigrants or their descendants, according to Jeffrey Passel, demographer at the Pew Hispanic Center. Without them, the USA would have about 250 million people today." Since only some 20 percent of immigrants have high school diplomas, job competition is most fierce among entry-level or low-skilled workers.
Another factor is outsourcing. As long as credit card companies, CPA firms and a host of other businesses that provide services that can be offered from places where wages are significantly lower, they will continue to ship work overseas.
Employers add benefits, job stability and increase salaries during labor shortages, not during labor surpluses. I hope the Fed is wrong and this recovery produces good jobs, lots of them and quickly. But the confluence of history and changed conditions in today’s job market seem to be pointing us in the opposite direction.
(Bonnie Erbe is a TV host and columnist. E-mail bonnieerbe(at)CompuServe.com.)