The Mother of All Jobless Recoveries

Oh God, more awful news about jobs. Now before you click away to read something lighter, please consider: this post is about something sad, but it makes its point with a numbered list. Easy enough, right? Right. So keep reading.

This Cleveland Fed report "Are Jobless Recoveries the New Norm?" is a fascinating, lucid and distressing look at why unemployment is still at 9.7% and why it's not going down any time soon. Read the whole thing, if you have time. But here are three keys facts I want to pull out.

1. This is no longer a firing crisis. It's a hiring crisis.
Job openings are still in the toilet, CF reports. Here's a chart that makes that point ring loud and clear. These are numbers from the Bureau of Labor Statistics (in thousands). From left to right, we've got job openings, total unemployed in the labor force, and the ratio.

bls unemployment data.png

Lesson: hiring is in the dumps. Job openings have fallen year-over-year even after two quarters of positive GDP growth. This, incidentally, is one reason I think extending benefits to people without jobs is still a good idea. Subsidizing unemployment would be much more of risky if job openings weren't near historic lows.

2. More demand won't fix the problem (at least initially).
The smart and common thing to say about jobs is that they will come back when demand for goods and services picks up. That's not exactly true. Demand is a key engine of employment, but the nearer obstacle is the slack in the job market. What do I mean by slack? Consider: If you're an employer and business is getting stronger, you'll think about adding work hours. But that doesn't necessarily mean hiring unemployed workers. It might mean asking more out of your current payroll (average weekly work hours today are at 33.1 hours, and all-time low is 33.0) or making part-time workers full-time. The number of workers working part-time because of the economy (not by choice) has jumped by 4.1 million since December 2007. Before we see that 9.7% figure fall dramatically, the economy will start by absorbing 4.1 million part-time workers.

3. Get ready for another jobless recovery.
The unemployment rate tells us what percent of the labor force does not have a job. It does not tell us whether Americans are unemployed because they just lost their job (indicated by a high job separation rate), or because they have been out of job for an extended period of time (indicated by a low job finding rate). Today half of unemployed 9.7% has been out of work for more than 27 weeks, the highest number on record. This graph helps to explain why.

More than 95 percent of the change in the unemployment rate since the beginning of the recession is due, not to job separation, but record-low job finding. "During the past three recessions," CF explains, "the decline in the job finding rate has been playing a bigger role in unemployment rate fluctuations. Relative to the change in separations, the job finding rate changed (declined) much more in the last three episodes." In other words, what we're looking at is something like the mother of all hiring crises.