10 Hard Facts About America's Economic Recovery
The nonpartisan Economic Policy Institute took up much the same question in a conference call with reporters.
First, staff economist Heidi Shierholz outlined 10 facts about the recovery (which, you'll recall, officially began two years ago):
1. The real gap in the labor market is now around 11 million jobs.
"The economy currently has 6.9 million fewer jobs than when the recession started. But because the working-age population is naturally increasing all the time, in the three years and five months since the recession started we should have added around 4.1 million jobs to keep pace with population growth."
2. Job growth in this recovery outpaces that following the 2001 recession, but is still too slow.
"In the 23 months since the official end of the Great Recession, payroll employment has grown by 550,000 jobs. Twenty-three months after the end of the 2001 recession, payroll employment was down an additional 773,000 jobs. However, the length and severity of the Great Recession means that we are in a much deeper hole. In fact, three years and five months from the official start of the Great Recession, we are still down a larger percentage of jobs (5%) as a share of pre-recession employment than at any single point of any post-WWII recession."
3. The loss of public sector jobs is a huge obstacle to growth in this recovery.
"The public sector is now shedding around 25,000 jobs per month, largely due to budget cuts at the state and local level. Since the official end of the recession, the public sector has lost 430,000 net jobs, while the private sector has added 980,000 net jobs. In other words, more than 40% of the private-sector job gains in this recovery have been canceled out by job losses in the public sector."
4. Most of the improvement seen in this recovery consists of a decline in layoffs, not an increase in hiring.
"Layoffs spiked dramatically during the recession, but have substantially slowed during the recovery. At this point workers are no more likely to get laid off than they were before the recession started. That is a very positive sign, but has a flip side in the trend in hiring. We have seen very little improvement in hiring, which is still roughly 25% below its 2007 average."
5. The current problem is not that we lack the right workers, it's that we lack enough job openings.
"Some have claimed that hiring has not picked up substantially because employers can't find workers with the needed skills. If this were the case, we would expect some sectors to have more job openings than unemployed workers, or at least to have much more balance, as employers in those sectors struggle to find the workers they need. But there are no major sectors where that is happening."
6. The share of the working-age population with jobs has not yet improved.
"The unemployment rate, of course, has dropped somewhat, falling from its peak of 10.1% in October 2009 to 9.1% in May 2011. However, an improvement in the unemployment rate is only good news if a larger share of the potential workforce actually finds work, and that is not happening -- the entire improvement in the unemployment rate over that period was due to would-be workers deciding to sit out the job search altogether (and thus not being counted among the officially unemployed)."
7. "Underemployment" has also improved very little in the recovery.
"The number of workers who want a full-time job but have had to settle for part-time hours shot up from 4.3 million in the first half of 2007 to 9 million by the spring of 2009. That number hovered around the 9 million mark until the end of 2010, and has not improved much this year. Importantly, the fact that there has been so little improvement here belies the claim that businesses aren't hiring because they are wary of the potential burdens of laws like health care or regulatory reform. If businesses had work to be done but were wary of making new hires, then they would ramp up the hours of their existing workers."
8. Unemployed workers continue to face near-record spells of unemployment.
"The share of unemployed workers who had been jobless for more than six months shot up from 17.6% in the first half of 2007 to 29.3% at the official end of the recession to over 45.6% by the spring of 2010, an all-time record. It has bounced around 45% since then, and is currently 45.1%. The fact that layoffs have abated in the recovery provides little relief to the already unemployed."
9. Racial and ethnic minorities have fared worse than whites in both the recession and the recovery.
"At the official end of the recession, the unemployment rate for whites was 8.7%, which has declined somewhat to 8.0%. The unemployment rate for Hispanics at the end of the recession was 12.2%, which has declined by a lesser extent, to 11.9%. Black workers have been hit the hardest: At the end of the recession the black unemployment rate was 14.9%, and it has since increased to 16.2%."
10. Wage growth remains extremely low.
"Persistent high unemployment also hurts wage growth for workers with jobs. The reason is straightforward -- employers don't have to pay substantial wage increases to keep their workers when they know those workers don't have good outside options. Wages not adjusted for inflation have grown 1.8% over the last year, well below the growth rate of 2.6% at the end of the recession and about half the growth in the period before the recession started. Furthermore, with inflation growing faster on average than wages since the end of the recession, real wages are lower now than they were when the recession ended."
What It All Means
For the 18 months of the Great Recession, labor markets deteriorated. At the end of 2009, they stopped dropping, but they've been basically stagnant ever since. Hiring is now 25% below where it was when the recession began. People with jobs have no greater chance of getting laid off today than they did before the recession, but what the 14 million Americans looking for jobs need is hiring improvement.
Shierholz's colleague Josh Bivens explained what distinguishes our current anemic recovery from the periods of growth that followed other recent recessions -- namely, the continuing loss of public-sector jobs. "The pace of private-sector job creation during the economic recovery that began in June 2009 is, in fact, faster than during the previous recovery and in line with the recovery of the early 1990s," Biven has written. "The current ongoing decline in government jobs, however, is a historic anomaly."
Biven also emphasized the importance of being clear about "the actual root cause of today's economic problems," which he identifies as "the depth and severity of the recession that began in December 2007" The bursting of the housing bubble wiped out $8 trillion of wealth, which hasn't come back -- and home prices have continued to fall. Consequently, hundreds of billions of dollars of household spending has been lost, drying up the demand for goods and services that fuels employment. Although "the stubborn woes of the job market have led many to claim that economic policies enacted in recent years (particularly those strongly associated with the Obama administration) have delayed a more rapid recovery," Biven says "this claim is wrong."
He admits that people want new explanations -- the bursting of the housing bubble is old news. But the fact that the government "never plugged the hole in demand" is what continues to bedevil the economy. No other explanation works, he insists (e.g., the claim that some great uncertainty about anti-business government initiatives is holding back hiring).
Looking forward, Biven said he is greatly concerned by the general idea that we need to close the deficit in the short term. Both economists worry that budget cuts currently under discussion will take effect too soon: In the next couple of years, they say, we need more fiscal support, not less. They expressed support for measures that would add some stimulus to the economy, such as an extension of the payroll tax cut. And they predicted that Friday's Labor Department numbers would show 100,000 new jobs -- just barely enough to keep up with growth in the population. The unemployment rate will thus remain at 9.1%. "We are not going to see the 350,000 jobs we need to see," Shierholz said. Given the grim reality that "the labor market has actually made little improvement since the depth of the downturn," EPI offers the following policy recommendations for the federal government (in lieu of what they call a premature focus on deficit reduction):
- Provide fiscal relief to states
- Expand the safety net (which, by getting money into the hands of people who will spend it, stimulates demand and generates jobs)
- Approve additional spending on infrastructure
- Implement direct job creation programs in particularly hard-hit communities
- Support work-sharing to avoid layoffs
- Have the Federal Reserve do more quantitative easing and/or target a somewhat higher inflation rate (e.g., 3% to 4%) to both reduce real interest rates and erode debt
- Lower the value of the dollar to boost net exports