11 years to get back to pre-recession employment levels

[jeffd]

A graph from Brookings that's been going around the various liberal blogs today:



Short version: We're fucked. We are facing a decade of high unemployment.

Longer version: What the graph shows is how long it will take to close the jobs gap based on the average number of jobs created per month. The jobs gap is the sum of the number of jobs lost during the recession and the number of new workers who have entered the workforce. That current number stands a bit above 11 million. This is how many workers we have to employ to get back to "normal" levels of unemployment.

Note that the graph calls out certain points. If we have job growth equal to the average monthly job growth in the best year of the previous decade (2005), it takes over ten years for the unemployment gap to close. And that's a somewhat rosy scenario.

Right now job growth is sitting around 140k per month. This is barely enough to cover new entrants to the labor force (125k-144k per month).

That graph is pretty much the case for further economic stimulus. Without something to kickstart this economy into gear we are facing a prolonged period of joblessness. Unemployment isn't just an abstract number - it implies tremendous amounts of suffering and long-term damage to workers, families, and our economy.

[Tim Partlett]

This is barely enough to cover new entrants to the labor force (125k-144k per month).

Does the graph take this into account? What about the number of people leaving the labour force, e.g. through retirement?

[jeffd]

Tim: I believe the 125k-144k number is a net (it includes retirements). I can't say for sure though. The graph does account for this number.

[wahoo]

The theory is that the labor force increases by 125K per month. That includes all the new entrants and people retiring.

I'd be interesting to see their projections on what the LFPR is. The Labor force participation rate of adult men has been on a steady downward trend for decades and the adult women LFPR has flatlined for the last 15 years. Teens has fallen as well. So the number needed per new month could go down if folks retire ahead of schedule. But that doesn't seem too likely right now.

I also think you have a Ricardian equivalence problem with additional stimulus right now.

[jeffd]

I also think you have a Ricardian equivalence problem with additional stimulus right now.

Howso? My understanding (albeit limited) is that Ricardian equivalence applies to debts vs. taxation, not the stimulative effect of additional spending.

[Cubit]

Sure is a great time for my wife and I to be finishing school and jumping into the workforce!

*sigh*

[wahoo]

Howso? My understanding (albeit limited) is that Ricardian equivalence applies to debts vs. taxation, not the stimulative effect of additional spending.

I believe that the same rational no debts vs. taxation will true for additional spending. If you see additional govt spending and higher debt, I think the private sector will reduce consumption and increase saving in preparation for the higher taxes. Ricardian theory is that when you have deficit financed tax cuts, some will be saved to pay for future tax increases. I believe the same will hold true except for tax cuts, you have increased govt. spending.

[jeffd]

That seems to rest on some pretty shaky ground; for one I think the assumption that households will react that perfectly isn't one we can take for granted. It's also going against the pretty firm Keynesian case for stimulus in the face of 9.5% unemployment.

[Robert Sharp]

Sure is a great time for my wife and I to be finishing school and jumping into the workforce!

*sigh*

'wife and me'

Stay in school!

Seriously, though, as a professor, it sucks to see students doing everything right and still not being able to find a good job. I feel partly responsible somehow, since they've been told that a college degree gets you a good job. That's no longer true; actually it hasn't been a sufficient truth for a while now. College degrees are like the HS diploma of 30 years ago. You almost have to have one, but it no longer gives you a big advantage in employment. It just keeps you from having a huge disadvantage.

I hope this chart is wrong somehow. 11 years is a long time. OTOH, do we need the same level of employment? What would be a decent number? How would we define decent here?

[jeffd]

Robert: Those are good questions. I don't have an answer for them.

[ElvishHammer]

I hope this chart is wrong somehow. 11 years is a long time. OTOH, do we need the same level of employment? What would be a decent number? How would we define decent here?

To add to the bleakness as well as your list of questions:

Taking into account that some of the jobs used in those years are gone for any foreseeable future, how many years needed to be added to account for those if they cannot be replaced (with say so called 'green jobs' which aren't looking too promising).

There seem to be quite a few positions that aren't just vacant and awaiting a turn around... they are are gone.

[Robert Sharp]

Which jobs do you mean? Like house builders and contractors? Certain aspects of banking? I'm just curious. I guess we'll have to hope that new industries open up. The classic (Smith) answer is that people will retrain and learn to work in these new sectors. The problem with that answer is that it's a bit too macro, IMO. Sure, jobs can eventually move around and the market can adjust, but 11 years is a long time to have so many people unable to work. That's why I'm wondering where we can get to some sort of acceptable point. I seem to recall that some analysts thought we had overemployment for a while there in the mid 2000s. If so, then we don't have to get back to those levels. But we certainly have underemployment right now. Where's the line?

[BigWeather]

College degrees are like the HS diploma of 30 years ago. You almost have to have one, but it no longer gives you a big advantage in employment. It just keeps you from having a huge disadvantage.

Which wouldn't be so bad if the cost of tuition wasn't rising astronomically relative to wages. I've told my kids that we're doing what we can to help them through college but it's just not worth them taking on debt for it. I'm hoping that if we can't help them through the college of their choice that they'll lower their sights a bit. I just don't understand why the cost of higher education is increasing so much when its value is decreasing.

(I'm not attacking your profession at all, I know that professors shouldn't be expected to work for free, and I personally value the time I spent in college. I suspect the tuition increases aren't going to you guys anyway but rather administration / athletics / what-not.)

[Janster]

Don't worry , once the dollar drops people are gonna start buying US goods across the world again.. maybe it will help.
Peter Schiff talks about that.

He is still a republican which is for me totally weird, that said, the bloody NZ dollar is STILL so strong, this is upsetting since I need it to go down.

[ElvishHammer]

Which jobs do you mean? Like house builders and contractors? Certain aspects of banking? I'm just curious.

I had mostly manufacturing in mind, specifically automotive and their related industries.
But as an example, this article points out not just manufacturing, but also advertising and retail. (Sorry can't post a clickable link yet.. just add the beginning):

2.timesdispatch.com/business/2010/may/16/jobs16_20100515-170204-ar-155730/

A personal example would be a section of a manufacturing plant shutting down. Now the reason for the shutdown was not just because of the downturn, but it did play a part (The other side of the plant which did not shut down was hit hard with a lot less orders). Or at the very least coincided with the downturn for me and everyone there to be affected by it. And this section is never coming back. At best it would be refurbished and upgraded, but you can do that in a different country for less money and that is even before considering taxes and chemical disposal and water usage. So its in the lost and not coming back column.
And as an aside it was making money and holding its own, but it wasn't as efficient, so if they closed it down they could make even more money potentially elsewhere.

As far as markets like housing, I don't think they are lost for good... it's just going to take awhile for the bubbles to start inflating again before those slots are refilled.

Now banking and wall street... I have faith that they will find some scheme using the new regulations and create new jobs.
You can take that to the bank!

I guess we'll have to hope that new industries open up. The classic (Smith) answer is that people will retrain and learn to work in these new sectors. The problem with that answer is that it's a bit too macro, IMO. Sure, jobs can eventually move around and the market can adjust, but 11 years is a long time to have so many people unable to work.

This was my main point. The data, which was giving some semblance of a best case scenario, involved jobs that we no longer have. If those jobs are not being replaced with new jobs, then the best case scenarios would have to be seen in this light. Just to use made up numbers:
If 2005 had a value of 100 and took 5 years, then today if we do not have the equivalent value of 100 but say 90 then it will take longer to get the same type of recovery. Which isn't very appealing.

Even with new industries the question is going to be asked if it is better to start in the U.S. or another country. And as far as manufacturing goes it seems most companies are looking outside of the U.S.

That's why I'm wondering where we can get to some sort of acceptable point. I seem to recall that some analysts thought we had overemployment for a while there in the mid 2000s. If so, then we don't have to get back to those levels. But we certainly have underemployment right now. Where's the line?

I was going to ask you a different question when I originally gave my 2 cents, which was something along the lines of: Doesn't what type of society the majority wants determine the outcome of your question? As in less government or more government? Each of those could tolerate or maybe even promote different levels of unemployment. But I don't think I know enough about economics to see whether an argument can be made succesfully. Just thought I would throw it out there to see if anyone had a thought on it.

[ydejin]

(I'm not attacking your profession at all, I know that professors shouldn't be expected to work for free, and I personally value the time I spent in college. I suspect the tuition increases aren't going to you guys anyway but rather administration / athletics / what-not.)

You would be right according to a study reported in the NY Times:

American colleges are spending a declining share of their budgets on instruction and more on administration and recreational facilities for students, according to a study of college costs released Friday.

Part of that non-instructional increase is probably mental health services and related student services support. We're getting higher and higher percentages of students with major mental health problems. One theory is that modern medications allow students with psychiatric problems to get into college when previously they wouldn't have been able to, but it doesn't really cure them (and only partly reduces their symptoms). Plus I can think of a half-dozen students off hand who "stopped taking their medication" which was pretty clearly a mistake.

In fact as far as money spent on faculty goes, many universities are shedding full-time faculty and replacing them with part-time lecturers. The part-time lecturers are dirt-cheap. IIRC correctly they get paid around $3000 per quarter, so they are literally making 1/8th of what a low-end professor would be making. Plus they don't get benefits.

[Robert Sharp]

Which wouldn't be so bad if the cost of tuition wasn't rising astronomically relative to wages. I've told my kids that we're doing what we can to help them through college but it's just not worth them taking on debt for it. I'm hoping that if we can't help them through the college of their choice that they'll lower their sights a bit. I just don't understand why the cost of higher education is increasing so much when its value is decreasing.

(I'm not attacking your profession at all, I know that professors shouldn't be expected to work for free, and I personally value the time I spent in college. I suspect the tuition increases aren't going to you guys anyway but rather administration / athletics / what-not.)

I understand your points. And no, the money isn't going to me. Well, we do get cost of living raises, but it's not much. The tuition hikes seem to outstrip those raises, but I don't see the numbers, so I can't be sure. Universities have been hit HARD by the recession though, as many states have cut back their higher education funding. As a result, schools are almost having to raise tuition to make up for the lost state funding.

[Robert Sharp]

Even with new industries the question is going to be asked if it is better to start in the U.S. or another country. And as far as manufacturing goes it seems most companies are looking outside of the U.S.



I was going to ask you a different question when I originally gave my 2 cents, which was something along the lines of: Doesn't what type of society the majority wants determine the outcome of your question? As in less government or more government? Each of those could tolerate or maybe even promote different levels of unemployment. But I don't think I know enough about economics to see whether an argument can be made succesfully. Just thought I would throw it out there to see if anyone had a thought on it.

Thanks for the article and example. I agree that outsourcing manufacturing appears to be a permanent change, unless Americans will one day be willing to work for pennies.

As for the government question, I suppose that would be a factor. I don't know how to answer it though, because like you I don't know the economics well enough.

[BigWeather]

Part of that non-instructional increase is probably mental health services and related student services support. We're getting higher and higher percentages of students with major mental health problems. One theory is that modern medications allow students with psychiatric problems to get into college when previously they wouldn't have been able to, but it doesn't really cure them (and only partly reduces their symptoms). Plus I can think of a half-dozen students off hand who "stopped taking their medication" which was pretty clearly a mistake.

In fact as far as money spent on faculty goes, many universities are shedding full-time faculty and replacing them with part-time lecturers. The part-time lecturers are dirt-cheap. IIRC correctly they get paid around $3000 per quarter, so they are literally making 1/8th of what a low-end professor would be making. Plus they don't get benefits.

Wow, that is sobering... Money spent to help those students should be spent in the short term but in the long term it seems like as a society we should be attacking the problem much, much earlier. Of course that slides into a whole different topic about society and its increasing reliance on medication and such. That's also a damn shame about getting rid of full-time faculty (other than the ones that bring in big grant money through research I assume) and replacing them with part-time. I guess that's just a trend we have in our business world that hits here too.

I understand your points. And no, the money isn't going to me. Well, we do get cost of living raises, but it's not much. The tuition hikes seem to outstrip those raises, but I don't see the numbers, so I can't be sure. Universities have been hit HARD by the recession though, as many states have cut back their higher education funding. As a result, schools are almost having to raise tuition to make up for the lost state funding.

I agree that universities have been hit very hard by the recession. In North Carolina they are cutting to the bone. However, the tuition hikes (at least here in NC) were frequent all throughout the "good times" (however illusory) of the late 90's and mid 00's. I recall lots of money going to new buildings, athletic facilities, and the administration staff bloated (in fact, NCSU was embroiled in a scandal when the governor managed to get his wife on the staff and she did a whole lot of nothing). It's a mess.

[Robert Sharp]

True. In the good times, the hikes are supported by appeals to a need to expand. This includes expanding administration. Note that a lot of that administrative expansion is due to increase strictness of accreditation. We have to have people dedicated to just that one thing, and we are a small university (around 100 faculty, with about 1500 undergrads, as a private liberal arts university). The larger schools have whole departments based around this. That's just one example of the growing administrative costs, some of which may or may not be strictly necessary. At some point though (and we may already be there), the cost of higher education won't promise a good enough ROI to make it worth doing.

[Jason McCullough]

Shit.

The median duration of unemployment is higher today than any time in the last 50 years. That's an understatement. It is more than twice as high today than any time in the last 50 years.

[Enidigm]

So.. is it going to be mercantilism or free trade, in the end?

[bago]

The answer is obviously more tax cuts. Look at how stimulative they are!

[Mark Asher]

The answer is obviously more tax cuts. Look at how stimulative they are!

Cut taxes for the wealthy. Cut spending aimed at the poor and unemployed. Get rid of all the illegals, and get rid of minimum wage laws. Before you know it, Nike won't have to make shoes overseas -- they can pay the same overseas wages to people here!

Voila, unemployment disappears and everyone is happy!

[Nellie]

Tim: I believe the 125k-144k number is a net (it includes retirements). I can't say for sure though. The graph does account for this number.

I don't get this. We're supposed to have a huge "bubble" of my parent's generation retiring over the next few years, falling birth rates, pension schemes that can't pay for it and all that jazz. So it seems odd to me that the number would be so low

I know the US <> the UK, but I was assuming that this is how the Tories can claim that Unemployment will peak this year while they embark on cutting the public sector by 40% and privatising the NHS over the coming years.

[ceolstan]

Cut taxes for the wealthy. Cut spending aimed at the poor and unemployed. Get rid of all the illegals, and get rid of minimum wage laws. Before you know it, Nike won't have to make shoes overseas -- they can pay the same overseas wages to people here!

Voila, unemployment disappears and everyone is happy!

Apparently, cheap Chinese labor may become a thing of the past. Oddly enough, Chinese workers actually want higher wages and better working conditions.

On a slightly tangential note, my husband's company must be managed by brain-dead idiots too stupid to work for Dilbert's company. Like many American manufacturers, they opened plants in China. The current management group opted to close a plant that makes some of the parts that the local plant uses to create its products. The idea was that they could make the same parts cheaper in China.

Except that the Chinese plant 1) can't turn around orders fast enough and 2) has major QA issues. As a result, instead of shipping parts by freighter--by far the cheapest option--they're air-lifting heavy, heavy parts! How it makes business sense to use air to ship heavy parts half way across the world when you could have a company 3 hours up the road make the same damn parts is beyond me.

What's scary is that my husband's company is probably more typical of American manufacturing mentality than atypical.

[Brian Seiler]

Apparently, cheap Chinese labor may become a thing of the past. Oddly enough, Chinese workers actually want higher wages and better working conditions.

Not surprising, but that just means you'll need to change the country from China to Bangladesh or Pakistan or wherever labor is seriously cheap because the standard of living is low.

I am shocked at the hardware thing, though. Coders have known for years that trying to get quality code out of an offshore contracting company requires about exactly as much work as writing out your spec in Z and running it through an interpreter. I don't know whether it's comforting to know that the problems aren't isolated to source code or not.

[Robert Sharp]

Sure, but eventually you can't keep doing that right? Eventually, we will have lifted every third world economy into a super power, while driving our own back into the Stone Ages. Jason's chart is stunning. I'd like to see it taken further back though. What did it look like in the Depression, for example? The post war times weren't that bad, even when they seemed bad (70s and 80s recessions, eg). I'd like a better comparison, to get a sense of it.

[Brian Seiler]

Sure, but eventually you can't keep doing that right? Eventually, we will have lifted every third world economy into a super power, while driving our own back into the Stone Ages.

That kind of depends on a lot of stuff. Moving production out of China, for instance, will get complicated, because of the control that their government holds over their economy and the massive potential consumer base that they can use as a carrot to lure in multinational ventures. It's equally possible that things could just start getting more expensive as the Chinese standard of living improves and no comparable development happens in the rest of the developing world. The best of all possible results would be the development of production facilities in all of those segments of South America and Africa and Asia that could give us cheap labor, and that's what would happen in a universe with a perfectly enforced universal free trade agreement making the globe a level playing field, but that's not the universe we live in.

I honestly don't know what to expect at this point. However, I also question whether we'll ever get back to pre-recession employment levels, or whether that's a realistic goal to set. 5% unemployment is considered "full employment" - we were under that by a bit before the crash.

[Mark Asher]

The other issue about reducing unemployment is the kinds of new jobs that will be created. Here in the St. Louis area we lost a lot of auto assembly jobs during the recession, and they are not coming back. Those workers will eventually find other jobs, but not at the pay they were making -- probably not anywhere close to what they made.

When you lose $35,000/yr jobs and replace them with $20,000/yr call center jobs, you may reduce unemployment but you haven't replaced the income that was lost.