The Great Recession: Part Two

00:00:06 As we described in the first part of the series, the recession took a large toll on jobs in the United States. In fact, it dug a big hole which we’re only just starting to fill. We lost 8.8 million jobs in mid-recession. And we’ve just started to add jobs back in an incremental pace.

00:00:29 One of the reasons that we’ve had such slow progress in filling that hole, is that while layoffs have returned to normal levels – levels that we would expect in a dynamic economy – hiring remains very slow. Generally, in expansions what happens is hiring outpaces layoffs. So that it’s always the case in the United States economy, there are firms letting go of workers, and there are firms hiring workers. But what normally happens in an expansion, or recovery like we’re in now, is that hiring is faster than layoffs. And so, on net, jobs grow quickly in the economy. And that hole that you saw fills up fast.

00:01:00 But what’s happened in this recession and recovery period is we had enormous spike in layoffs as employers shed workers constantly, really, for almost a year and a half. While that’s subsided, we haven’t had hiring coming back anywhere close to what we expect. So, the remarkable thing about the picture shown here is that hiring and layoffs look exactly the same. Hiring hasn’t done that expected thing where it’s outpacing the pace of layoffs.

00:01:27 Firms are being quiet on the hiring front and waiting to see what’s going to happen going forward, making do with who they have already. As a result, you can see that there are many unemployed for each job. So, in the recession, of course, it was quite a bit worse. There were seven unemployed people for every one job opening available. Now, we’ve come down, we’ve improved quite a bit. But there still remain over four unemployed people for every single job opening posted in the United States. This is well, well above the normal rate during a recovery.

00:01:58 If you look back to 2001, the last time we had a recession when these data were collected, it was something on the order of 2-2.5 unemployed workers for every one job opening. So, we’re double that rate at this point. If you really want to put this back into sort of a metric that I think is more salient, all you have to do is read the newspaper in the morning or listen to the radio. And realize that when one job opening is posted, or five job openings are posted at a local manufacturing plant, 500, 600 people show up for that job opening.

00:02:29 Now, a question I often get asked as an economist is, well, isn’t this just about the fact that we laid off construction workers, and maybe some mortgage brokers, and we actually need to hire nurses and health care professionals? And the answer to that question is actually, decidedly, no. Any industry you go to, from construction, manufacturing, professional and business services, you have a large number of unemployed workers for every few job openings. So, the long bars are the number of unemployed workers. And the short bars are the number of job openings.

00:03:00 And the gap between the short bar and the long bar is large no matter which industry you look in. So, I take this to mean that there are lots of unemployed workers in every industry that we have job openings. And there just isn’t much hiring going on. So, demand for workers is low, and supply of workers is large. So, what does this mean if you sum it all up? Well, it means that that big hole we saw earlier is going to be slow to fill. That’s going to be painful because

00:03:29 when you don’t have enough jobs to fill that hole, you have a long, slow process of bringing the unemployment rate down. So, it’s no longer above ten percent, as it was at the peak. But it’s only nine percent, which is a very small reduction in unemployment relative to what we’ve come to expect in recoveries. In fact, our own forecast that we do when we track the economy, suggests that even at the end of 2013 we’re looking at unemployment rates around eight percent. That’s well above what we consider the full employment rate of unemployment, which is around five, five and a half percent.

00:03:59 This gives you some sense of why policymakers have turned almost all their attention to job creation in the United States. No matter what your metric for creating jobs is. Whether it’s tax breaks for businesses, or jobs programs for job creation, most policymakers have focused all their attention on how do we have job growth in the United States? How do we get American workers back into employment?