April 29, 2005
About that jobless recovery...
The Economist is fretting about the U.S. economy. Of course, The Economist is always fretting about the U.S. economy—often, it seems, in the hope that something really bad will befall it. So nothing new there, except for an intriguing take on U.S. jobs:
A better measure of the employment picture is payrolls, which only surpassed their February 2001 peak in January of this year. Since the working-age population has grown over those four years, this means the jobs picture is still decidedly troubling.
The most likely explanation for sluggish recovery in payrolls comes from Erica Groshen and Simon Potter of the Federal Reserve. They argue that while most unemployment in earlier slowdowns was cyclical—firms laying off employees who would then get their jobs back (or ones very like them) when the economy picked up—in the last two it has increasingly been structural, meaning that people need to switch sectors, locations or skills in order to find a job. Since it takes much longer to do the latter, payrolls are not rebounding as they used to.
Groshen’s and Potter’s paper explains this in more depth:
Cyclical adjustments are reversible responses to lulls in demand, while structural adjustments transform a firm or industry by relocating workers and capital. The job losses associated with cyclical shocks are temporary: at the end of the recession, industries rebound and laid-off workers are recalled to their old firms or readily find comparable employment with another firm. Job losses that stem from structural changes, however, are permanent: as industries decline, jobs are eliminated, compelling workers to switch industries, sectors, locations, or skills in order to find a new job.
To determine whether this is in fact the cause of America’s slow job growth, the authors studied four recent recessions and compared the share of employment in industries undergoing cyclical change with the share of employment in industries undergoing structural change. The chart summarizes what they found:
Groshen and Potter think three factors might be behind this:
First, the structural decline observed in many industries might be a reaction to a period of overexpansion. Second, improved monetary and fiscal policy may have reduced cyclical swings in employment, leaving structural shifts as the prevailing form of change. Third, innovations in firm management may be promoting a structural shift toward leaner staffing.
There’s little doubt that over-investment in high-tech and telecoms in the late 1990s left both sectors with a major hangover—one that hasn’t gone away as competitive pressures have continued to increase. There’s also evidence to suggest that in the most recent recession, monetary policy did in fact reduce cyclical changes, particularly in housing investment and consumer durables. And in every sector, companies have increased their focus on cost-cutting, improving productivity, and streamlining operations (which of course includes outsourcing both here and overseas).
None of this is going away. Which means job-hunting won’t get easier anytime soon.
Posted by Stephen at 7:29 PM in Economics | Permalink | TrackBack (0)
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