Jobs will follow a recovery, not spark one

Waiting for an economic recovery to trigger new job creation is like showing up for brunch in New York City without reservations . . . be prepared to sit around for a while. According to a recent study by outplacement consulting firm Challenger, Gray & Christmas, a copy of which DailyFinance has obtained, it may take months -- or possibly years -- before unemployment abates. Even so, a shift away from temporary layoffs to alternate forms of employment may mask a recovery, as incomes return ahead of traditional employment rates.

It seems fairly obvious that any meaningful job growth will only come after businesses are willing to loosen purse strings to expand their capabilities -- either through the introduction of new capacity for existing work or through the addition of new business units or products that require an increase in staff. New ventures would have to secure sufficient investment to get off the ground. And, for certain jobs, the use of freelance, outsourced or temporary labor would come before such roles are made permanent.

But, there's a component that's not so obvious.

Consumer sentiment continues to be a problem, and tightly clamped wallets will impede a recovery. Money has to be spent in order to stimulate growth (a fact that the government, it seems, has come to embrace). High unemployment clearly limits the consumer's willingness to spend, and the credit-fueled binges that got us into this mess are unlikely to light the path out. Once stung (badly), consumers are unlikely to finance an immediate return to the norm at the expense of the slightly more distant future – we're seeing now the flaws in that approach.

Further, there is a historical precedent for jobless recoveries. John A. Challenger, CEO of Challenger, Gray & Christmas, says, "In each of the last two recessions, the job market was the last area to recover. There is no reason to think that we won't see another jobless recovery in the wake of this prolonged recession."

The eight-month recession following the implosion of the dotcom economy, which Challenger identifies as ending in November 2001, was followed by an increasing unemployment rate for 19 months, reaching its 6.3 percent peak in June 2003 (calculated using data from the Bureau of Labor Statistics). The previous recession – from July 1990 through March 1991, preceded a 15-month jobless recovery, with unemployment hitting a high point of 7.8 percent in June 1992. At the "end" of the recession, unemployment sat at 6.8 percent.

Increased flexibility in employment arrangements makes the current recession different from those of the early 1990s and the post-dotcom world. "Companies are a lot less likely to use temporary layoffs today," Challenger says, with part-time employees (such as freelancers and other temporary alternatives) available. These measures don't impact the unemployment rate, he notes. "There are about nine million people currently working part-time for economic reasons," he continues. "That is the largest number of economy-related part-timers in government records going back to 1955."

There's a decent likelihood that these people will move to full-time roles as the economy improves, but the change will be made cautiously, as recession-driven expense discipline will have to give way to a refocus on growth.

Cautious hiring practices, reliance on part-timers and an easing into headcount spending will cause jobs to lag a general economic recovery, a trend that has become the recession norm over the past 20 years. The depth of today's economic conditions will extend the time to rebound. Almost 4.5 million unemployed Americans (29 percent of the total) have been out of work for 27 weeks or longer, the highest level of long-term unemployment since BLS started tracking the measure in 1948.

Don't expect a call from a headhunter even when the economy does turn. Fortunately, the growth will have to come from somewhere, and it will be the alternatives to full-time work that will get consumers to start shelling out cash again. Eventually, that momentum will turn into jobs. The healing process, however, will take time.

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