Unemployment

The job market: a lost decade

Posted on Thursday, January 13, 2011

WASHINGTON (MarketWatch) — The number of jobs in the U.S. economy today is about the same as 10 years ago. That’s already bad news, but combine it with an ever-growing population competing for those positions, and you see why the unemployment rate has been hovering around 10%. But, as the following charts show, some job seekers are in a much more difficult place than others.
The number of jobs in the U.S., through December

Though nonfarm payrolls hit about 138 million in 2007, this measure, which includes government and private-sector positions, has shown almost no change over the 10 years from 2001 through 2010. Payrolls started 2001 at about 132 million and, after a gain of about 6 million, thudded back down to about 131 million at the end of 2010. Read more about the unemployment rate hitting 9.4% in December.
“Employment has gone nowhere during the past decade, and given the steadily growing population, unemployment has more than doubled to near double-digits,” said Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pa. “The job market is currently as tough as it has been since the 1930s Great Depression,” he said.
“However, job prospects are improving as U.S. businesses are very profitable and have strong balance sheets. It is no longer a question of can they hire more aggressively. It is a question of their willingness,” he said. “The missing ingredients have been credit for small businesses and confidence among all businesses. Credit should flow more freely this year and I expect sentiment to improve as the nightmare of the Great Recession fades and the policy uncertainty abates. It will take as long as five years to recover the jobs lost during the recession, but the economy is poised to get those jobs back.”
Harry Holzer, a public policy professor at Georgetown University in Washington, echoed Zandi: “Even separate from the Great Recession, job growth was quite weak over most of the past decade.
“Between January 2001 and January 2008 — a full economic cycle — the economy created just five million new jobs, which was not enough to cover the growth of the labor force in that period and certainly not enough demand to generate much earnings growth. Even when we recover from the Great Recession, which might take five or more years, we might return to a labor market just as sluggish as the one from the previous decade. And that requires other policies to help people advance — like improving the quality of jobs and creating more workers with the education and skills to compete for any good jobs we are creating.”
Private-sector jobs: a ‘lost decade’

Private-sector nonfarm payrolls fell in the past 10 years. There were about 112 million private-sector jobs at the beginning of 2001; that level dropped to about 108 million by the end of 2010.
“The 2000s have been a disaster for private job creation,” said Lawrence Katz, an economist at Harvard University in Cambridge, Mass. “This was a lost decade for private-sector job growth.
“I am hopeful that 2011 will show improvement in private-sector employment growth and there are some initial signs over the last month pointing in this direction,” he said. “But the labor market will still be a very difficult one for the long-term unemployed and new entrants into the labor market. It will take several years of strong job growth to get back to anything resembling a normal labor market.”
Unemployment rates, by education level

The recession has been hard for all types of workers, but some have suffered more than others. The economic downturn exacerbated the unemployment-rate gap between those who have a college degree and those who don’t. In December, the unemployment rate for those 25 and older with less than a high-school diploma was about 15%, compared with about 10% for high-school graduates, and about 5% for those with a college degree.
“There’s always been an unemployment-rate differential between different education groups, and these differentials tend to widen during recessions,” said Timothy Bartik, senior economist at the W. E. Upjohn Institute for Employment Research in Kalamazoo, Mich.
“This recession was no exception. From the point of view of employers, there are greater incentives to retain workers who might have scarcer skills, like a bachelor’s degree. Workers in durable goods tend to have less than a B.A. credential,” he said.
Still, he said, “people talk as if the only skills are educational credentials. Some workers may not have a B.A. degree, but they have all kinds of skills that other people don’t have. It’s this middle-skills group that gets hurt — they may have considerable job experience, some certification, but they may not have a four-year college degree. The long-term future for those with job experience and skills, but not a B.A., is in some cases quite good, in other cases, not so good,” he said.
“Certain skilled but non-B.A. professions such as electrician and plumber have some decent job prospects long-term,” he said. “Other occupations, such as skilled manufacturing jobs, depend upon what happens to the U.S. exchange rate and U.S. trade policy. Or, in the case of construction-related occupations, what happens to the housing industry: when will the housing market bottom out and begin a robust recovery?”
Teenagers’ unemployment rate, by race

For young people, landing that first job can put them on a path to later success. But teenage unemployment has risen steeply, and there is a stark difference between unemployment rates for white and African American teens. For 16- to 19-year-olds, the unemployment rate for whites was about 23% in December, versus a whopping 44% for African Americans.
“The scarring effects of this level of unemployment on the cohort of new labor-market entrants is going to be profound and long lasting, beyond when the aggregate labor market recovers from the Great Recession,” said Heidi Shierholz, an economist with the Economic Policy Institute, a Washington think tank.
“These young workers may see job instability, earnings instability, and reduced earnings for 10 to 15 years. Young black workers, with unemployment rates that have reached near 50% during the Great Recession, will feel these persistent scars more profoundly,” she said.
“The ratio of black teen unemployment to white teen unemployment hasn’t changed over the Great Recession — it has stayed right around 2. In other words, black teen unemployment remains about twice as high as white teen unemployment, just as it has for about a decade. So the black teen unemployment rate, while unacceptably high, is nevertheless about what I would expect given the overall unemployment rate,” she said.
Employment-population ratio

The employment-population ratio is the proportion of the civilian non-institutional population, at least 16 years old, that is employed. The rate dropped to about 58% at the end of 2010, from about 64% in the beginning of 2001.
“The employment-population ratio is the broadest measure of the health of the labor market. There’s been a big plunge,” said Dean Baker, co-director of the Center for Economic and Policy Research, a Washington think tank.
“There are a lot of people who have given up looking for work, or don’t bother because it’s hopeless. We are down by more than six percentage points” over the past 10 years, he said. “That’s a lot of people who would like to be working, but aren’t.
“The willingness of the population to work does not change quickly, so if we know that a particular share of the population was working when the economy was stronger a few years ago, we should assume that the same percentage of the population would be interested in working today, if the opportunities existed,” he said.
“The gap between the current [ratio] and the previous peak can therefore be viewed as a way of measuring the number of people who would like to work but are not able to as a result of the weakness of the labor market,” Baker said.
Unemployment, and under-employment

This chart reflects the “U-6,” a wide gauge that includes unemployment and under-employment. In addition to the unemployed, the U-6 takes into account those who are “marginally attached” — they are no longer in the labor force but they would like to work and have looked for a job within the past 12 months. The measure also counts people who have settled for part-time work. The U-6 rate was about 17% in December, up from about 7% in early 2001.
“Seventeen percent is extremely high. That’s one-in-six. If we look back 10 years, when the labor market was strong, the U-6 rate was around 7%, just one-in-fourteen,” said Nigel Gault, chief U.S. economist at IHS Global Insight, a Lexington, Mass.-based economic-consulting firm.
“The rate is probably going to inch down over the course of the year to something like 16%. It might come down a bit more than the unemployment rate because a few who are involuntarily working part-time will probably convert to full-time workers,” he said.
“The high U-6 rate reflects two big problems on top of official unemployment,” he said. “You have the so-called ‘marginally attached’ workers who would like to work but who have given up because they see no opportunities. These workers will progressively lose touch with the labor market. The longer they’re out, the greater the odds that they’ll never get back into employment.
“And you have part-timers who’d rather work full time. At least they are still involved in employment, but they are being under-utilized and will have a hard time making ends meet.
“Bottom line, the high U-6 rate represents both individual distress and a massive waste of resources for the economy,” he said.
Labor’s share of output index — or, what workers get


(For this chart, data are through Sept. 2010)
This index is a gauge to measure the portion of companies’ output — the value of goods and services in current dollars — that is paid to workers as compensation. That share has been declining. Analysts can use the data to assess who is benefiting from the growth in productivity. Also of note, real median weekly earnings have barely budged in the past 10 years, even as productivity has gained.
“Business owners are simply capturing a larger fraction of the revenue being earned from private-sector businesses; workers are capturing less of it,” said Gary Burtless, an economist at the Brookings Institution, a Washington think tank.
“The main reason I think is that workers are in a very weak bargaining position. Ten percent unemployment tends to do that, you know,” he said. “Now is a nice time to be a business owner. For your average worker, not so much.”
By Ruth Mantell, MarketWatch


Supporting Materials

Comments

1000 characters maximum Your Name:    

By Category

Recommended Sites