The Great Recession: Part One
Mary C. Daly, Associate Director of Research and Group Vice President, discusses the Great Recession (video, 4:48).
In the first installment of Economics In Person, Mary C. Daly discusses the legacy of the Great Recession and the daunting problem that policy makers face in helping to foster economic recovery: persistent unemployment and extensive job losses.
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- How many jobs were lost from the peak of employment in 2008 to the bottom of employment in mid-2009?
0:00 - 0:17
- Mary describes job losses during the Great Recession as "broad-based." What does this mean?
0:18 - 1:53
- In the skill distribution discussion, which groups experienced unemployment double during the Great Recession? What is it about college-educated workers that Mary characterizes as historic?
1:54 - 2:11
- How many weeks of not working does it take to be counted as "long-term unemployed"? How many months?
2:12 - 3:57
- Name the four labor market factors that distinguish the Great Recession?
- Of the four distinguishing characteristics that Mary describes in the video, which one do you think is the biggest challenge facing policymakers and why?
With financial markets finally settling and the economy beginning to post positive GDP growth, policy makers are turning their attention to the more daunting problem of the Great Recession and that is the large number of individuals who lost their jobs in that recession and have still been unable to find new jobs.
This problem actually will be a legacy of the Great Recession. It'll be one is the most difficult to solve by policy makers and the one that probably causes the most pain and suffering.
There is no doubt that the recession took an enormous toll on jobs. If you look from the peak of employment to the trough of employment, we lost 8.8 million jobs in the United States; that puts us back at an employment level that we haven't had since 1999 and actually erases a decade of growth in jobs and in the economy more broadly. Of course with this large loss of jobs unemployment in the United States skyrocketed and it actually reached levels that we hadn't seen since 1980 which was also a deep and very painful recession.
If I add to that number, though, that broke through 10 percent, if I add to that number the number of discouraged workers, those who simply left the labor force all together and stopped looking because they thought their prospects were so poor; if I add those workers back in then we have unemployment rates and discouraged worker rates that we didn't even see in the 1980s recession. And, in fact, you'd have to go back closer to the Great Depression to see this kind of pain and suffering in the US economy.
A distinguishing factor about this particular recession is that the job losses in the United States were very broadbased. They weren't simply centered in construction and finance, the two epicenters for the start of the recession, but, in fact, spread to manufacturing, to retail and wholesale trade, to leisure and hospitality sectors. Importantly, even to professional and business services which have, for the last two decades, felt somewhat immune to cuts in the US economy and declines in growth.
Another distinguishing factor about this recession is that we had a rise in unemployment across the skill distribution. Typically, college educated workers are a little more insulated than high school graduates are but in this recession, whether you were a college graduate or you had less than a high school education or a high school education, you saw unemployment for your group double; that means that newly minted college graduates who literally have done everything we've asked them in investing in themselves and their schooling and taken on careers that they thought would deliver them at least a job, if not a job with a growth and income that they'd come to expect and seen their parents obtain; those individuals were also unemployed and, in fact, are unemployed in record numbers. We can't find a place in history where we've had college graduates coming out and not being able to find jobs at the levels that they are today.
A third distinguishing characteristic about this recession is that so many of the job cuts were permanent. It is always the case, don't get me wrong, that when we have a decline in the economy most job cuts are permanent. About 65 percent, sometimes 75 percent of job cuts are permanent but what is distinguishing about this particular recession is that something closer to 85 percent of all job cuts were severing the employment relationship on a permanent basis and, in many cases, if you looked beneath those data severing careers on a permanent basis. So it's not just that I lose my job with an employer; it's that I lose my career in construction or finance or maybe in a manufacturing sector or potentially even in the high tech or other sector. So, you're severing permanently your relationship with an employer and you're severing permanently your relationship with a career in many cases.
The final distinguishing characteristic and the one that really, I think, creates a considerable amount of pain and frustration among policy makers faced with fixing it is the record high long term unemployment. So, we're facing a problem now that nearly 50 percent, half, of all workers who are unemployed have been unemployed for 27 weeks or more. So, if you wake up in the morning and listen to the radio or read the newspaper you're not hearing people say "I have two to three months of unemployment." They're saying "I have two to three years of unemployment."
When you're out of the labor force for two to three years your skills start to depreciate. You start to wonder "When will I ever get employed again?" and "How will I get employed?" and this is the problem that is a legacy for policy makers. They will need to think about "How do I spur the economy?" How do we, collectively, spur the economy in a way that not only gets the jobs growing at a faster pace than we've currently seen but also grows jobs for people who have been unemployed and left idle for two or three years? How do we incorporate all of these individuals who lost their positions in the Great Recession back into a labor market that's fully functioning going forward?
About the Speaker
Mary C. Daly is Senior Vice President and Associate Director of Research at the Federal Reserve Bank of San Francisco. Her areas of research focus include labor economics, public economics, and social welfare. See her research page.
Elsby, Michael, Bart Hobijn, Aysegul Sahin, and Robert Valletta. "The Labor Market in the Great Recession: An Update." FRBSF Working Paper 2011-29 (2011).
Lansing, Kevin. 2011. "Gauging the Impact of the Great Recession." FRBSF Economic Letter (July 11, 2011).
Valletta, Robert and Katherine Kuang. "Why is Unemployment Duration So Long?" FRBSF Economic Letter. (January 30, 2012).