Will Employment Improve More Quickly Than Anticipated?
With retailers reporting cheerier reports for March than analysts expected, some economists and econo-pundits are beginning to revise their skepticism about the duration of high unemployment. The logic goes: if spending ramps up more quickly than anticipated, then the U.S. economy will improve fast too. That will create more jobs than we thought.
For a few examples of newfound optimism, check out a Bloomberg article here and one by Floyd Norris in the New York Times here. Is there now reason to believe that employment will experience a steep recovery? Not when you consider the structural changes in the economy and depths of underemployment.
Structural vs. Cyclical
Most recessions are cyclically driven. The business cycle hits a trough, firms lay off workers. As the economy recovers, those workers get hired back before long. This time it's different. The real estate industry experienced a major correction. Many people who were in that sector can expect to experience prolonged unemployment. Even when the broader economy improves, real estate will not return to its 2005-2006 levels.
Proof of this can be seen by analyzing the latest job numbers from the BLS and comparing them to stats in prior reports. The economy has lost 8.2 million jobs since the recession began in December 2007. That's 5.9% of total jobs at that time. The key is thinking about how those might be recovered.
Construction is a perfect example of an industry with real estate-driven jobs that won't be coming back for a very long time. The sector saw a peak around August of 2006, with 7.7 million jobs. As of March, there were just 5.6 million. That's loss of 2.1 million jobs, representing a 28% decline. The financial services industry tells a similar, but less severe, story: it lost 750,000 jobs since December 2006, amounting to 9%. Again, many of those aren't coming back.
Now compare that with cyclical industries. Leisure and hospitality is a perfect example. It lost 500,000 jobs, but that was just a 3.7% decline. Retail trade is also cyclical. Its decline was more significant at 7.3%, but that's still lower on a percentage basis compared to the structural losses above.
Underemployment Much Worse
The official unemployment numbers don't tell the whole story either. There are also other Americans who want jobs but aren't included in these totals for reasons like being discouraged. In addition to the 15 million unemployed according to BLS, an additional 5.7 million more want a job but don't have one. There are 1.4 million more people in this category than in March 2007.
A much grimmer number would include those wanting to work full-time but can only find part-time work. They are considered employed, even though their job situation is unsatisfactory. This accounts for another 9.1 million Americans. That number was less than half that -- just 4.2 million -- in March 2003.
This means, in addition to the 15 million unemployed, there are another 14.8 million who are underemployed. A true labor market recovery would need to find those others full time jobs as well. So the mountain that the U.S. economy must climb to pull out of this recession is much higher than even the 9.7% unemployment rate suggests. In order to get us back to the 4.4% "natural" unemployment rate in March 2003, we need 14.4 million more full-time jobs. Even if we have a steady growth of 300,000 jobs per month (about twice the 160,000 in March), then that would still take four years.