How Long Is America's Road Back to Full Employment?
As the U.S. continues its ongoing effort to restore the job market to health, investors might want to view the process the way they would the pursuit of a four-year college degree: Whatever efforts are put in now, the real payoff will take awhile to arrive.
All investors and job-seekers are aware of the Great Recession's impact on the job market from 2007 to 2009. About 8 million jobs were lost in the nation's worst economic downturn since the 1930s.
Almost every sector experienced job cuts, with the construction (2 million jobs lost), financial services (800,000 jobs lost) and auto sectors hit especially hard, according to statistics compiled by the Bureau of Labor Statistics. In the process, the nation's unemployment rate soared to 10.1% in November 2009, before declining slightly in 2010, to 9.4% as of December 2010.
Add in the approximately 7 million adults who were already looking for full-time work before the recession hit in December 2007, and it doesn't take a mathematician to see that the nation's full-time job deficit is huge: about 15 million jobs.
And the total is much higher if one considers discouraged unemployed workers not currently seeking work, who aren't counted in the official unemployment statistic, or part-time workers who want full-time jobs.
How Long Until Full Employment?
That means the 15 million-job deficit is conservative, though it may not be conservative enough, given the recent shift in public policy targets. In a speech in Denver on Saturday, Federal Reserve Vice Chairman Janet Yellen said a Federal Reserve Bank of Philadelphia survey of forecasters put the median "new normal" full employment jobless rate at about 5.75%. That's substantially higher than the 3.5% to 5% target range bandied about by economists a decade ago.
If one accepts a jobless rate slightly below 6% as the new standrd, that means the U.S. economy would need to create about 9.4 million jobs to reach full employment, according to BLS data, The New York Times reported.
So: With 9.4 million jobs as the goal, what does the recovery timetable look like?
First, a little background: The U.S. economy must create about 125,000 new jobs per month just to keep up with population growth and prevent the unemployment rate from rising. That's a constant in the full-employment equation. The biggest variable is GDP growth, which roughly parallels job growth. For example:
If U.S. GDP growth is strong, and the economy creates 300,000 jobs per month, the nation will reach full employment in about 3½ years, or in mid-2014.
If U.S. GDP growth is moderate, and the economy creates 250,000 jobs per month -- roughly the monthly job growth during the Roaring '90s -- full employment won't arrive until early 2016.
If U.S. GDP growth is weak and leads to a subpar 200,000 new jobs per month, full employment won't arrive until 2020 -- a staggering nine years from today.
It's a sobering picture of the task ahead, and no amount of sugar-coating can make that objective economic reality more palatable: The job deficit is huge, and it will take a long time to eliminate.
Why There's Reason to Hope
This isn't to suggest pessimism about the U.S. economy, let alone agreement with the even more dire "doom-and-gloom" forecasts. Rather, the view from here argues that a hopeful realism represents the prudent stance, for the following reasons.
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First, there's the adaptability of the U.S. economy. University of Connecticut political science professor Howard Reiter, a leading scholar on corporate capitalism -- our economic system -- says one enduring hallmark of the American economy is its elasticity: It's more flexible than many European systems. The freedoms we all enjoy (and too often take for granted) are the foundation for a system that can reform itself and implement innovation. It's a major reason that corporate capitalism still operates today.
Second, the role of technology, which benefits from Amercia's flexible, innovation-friendly economic system, could surprise everyone in the decade ahead.
Critics will quickly point out technology's job-eliminating dimension -- receptionists displaced by automated voice-mail or assembly-line workers displaced by a machine come -- but I subscribe to the prediction that after a period of U.S. economic restructuring, technology will create new job-growth fields as Americans retrain and as U.S. companies' sales of tech-intensive products and services continue to increase.
Third, U.S. GDP could grow significantly faster than many are predicting -- a point that speaks to the margin-of-error issue in five-year or even three-year forecasts.
Extravagant Speculation
If one had to make a U.S. GDP growth forecast for 2011 and 2012, a safe prediction would be moderate 2.5% to 3.5% growth range, with job growth sufficient to lower unemployment to about 8%, but not much lower.
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But who's to say the U.S. economy won't grow at better than 5% over the next two years? Is 6% growth out of the question? With that level of growth, could the economy sustainably create more than 300,000 jobs per month -- for years -- as companies increase hiring to meet both rising exports and domestic demand? And would the Federal Reserve, if it saw a job boom forming, with incomes rising at more than 4% per year, tolerate a higher inflation rate, at least for few years, to accommodate that boom?
Let's even speculate more extravagantly: What if a new, cheaper, abundant, domestic energy form were discovered or developed that substantially lowered transportation costs?
The point is, no one can predict with any level of certainty about any of those possibilities, either in the optimistic or negative views. The margin-of-error factor in long-term forecasts is simply too wide. Things could turn out as forecast -- but they could also turn out better.
To be sure, realism about the job deficit is prudent because it's huge. But perhaps the worst is behind us -- economically, if not politically -- and aided by the U.S. economic system's ability to adapt and renew itself, both the economy and job growth will register better than expected performances in 2011 and 2012.
