Creating New Jobs Rather Than Sharing Old Ones

Before heading to Asia in November, President Obama announced that a White House “jobs forum” will be held in December on jobs and economic growth.1 The president called for “openness to any demonstrably good idea to supplement the steps already taken to put American back to work,” while simultaneously warning against any “ill-considered decisions—even with the best intentions—particularly at a time of limited resources.”

This is welcome news, but it is also surprisingly late in the game for a Democratic administration to formulate an official employment policy response to the worst labor market depression since the 1930s. A quick look at the historical data easily attests to this.

Figure 1 Employment ratio 16 years or older January 1948–October 2009

Figure 1

Source: BLS CES Data.

Figure 1 shows how the US employment rate has declined at an unprecedented rate to just 58.5 percent, a level not seen since September 1983 when the women’s labor force participation rate was still rising. Unemployment is now below the level at the start of Reagan’s presidency in January 1981.

Figure 2 Long-term unemployment rate, six months or longer, share civilian labor force January 1948–October 2009

Figure 2

Source: BLS CPS Data.

Figure 2 illustrates the historically unprecedented level of long-term unemployment in the United States, indicating that American human capital is being lost at an unprecedented rate (this is what Larry Summers and Olivier Blanchard identified as a “hysteresis effect,” where the equilibrium unemployment rate rises with increases in the actual unemployment rate 2).

Figure 3 Index of aggregate weekly payrolls (SA), total non-farm production workers, January 1964–Oct 2009

Figure 3

Note: Aggregate payrolls include pay before deductions for Social Security, unemployment insurance, group insurance, withholding tax, salary reduction plans, bonds, and union dues. The payroll figures also include overtime pay, shift premiums, and payments for holidays, vacations, sick leave, and other leave made directly by the employer to employees for the pay period reported. Payrolls exclude bonuses, commissions, and other lump-sum payments (unless earned and paid regularly each pay period or month), or other pay not earned in the pay period (such as retroactive pay). Tips and the value of free rent, fuel, meals, or other payments in kind are not included.

Source: BLS CES; NBER.

Meanwhile figure 3 illustrates that even if you are holding onto your job in today’s labor market, you have likely been hit by a combination of stagnant wages and lower hours, yielding a historically unprecedented slide in aggregate weekly US payrolls. Earlier US recessions have tended to cause only a temporary stagnation in aggregate payrolls.

Figure 4 Total quarterly gross private job gains and losses Q2 1992–Q4 2008, percent of total private payroll employment

Figure 4

Source: BLS BED Survey.

And finally, figure 4 illustrates how the current US labor market emergency represents a rapid deterioration in a longer-term decline in US job creation. Gross US job creation averaged about 8 percent of private payroll employment each quarter during the 1990s. This fell to about 7 percent after 2001, while the latest available data from Q4 2008 puts it at a historical low of just 6 percent. Only a substantial increase in gross US job creation will prevent another jobless recovery.

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