Monday, April 20, 2009

Will employment really get back?

A sobering post from the Federal Reserve Bank of Atlanta studying the growth of employment after recessions. There is little in the way of hard and fast conclusions, given the small number of data points and the changes in the world, but the 2001 recession may be the closest indicator:
The two most recent recessions, which had relatively low rates of job decline, had very drawn-out employment recoveries. In 2001, employment—growing at an average annualized rate of 0.3 percent—took 35 months (nearly three years) to return to prerecessionary levels. The average rate of employment growth was also approximately 0.3 percent after the 1990–91 recession. But because the share of employment lost was less, employment returned to prerecession levels in 19 months.
The post tries to derive some sense of what could happen this time:
If the current recession ended today with a 2.7 percent job decline, and postrecession employment growth resembled the recovery from the 1981–82 recession, then employment would return to prerecessionary levels in approximately 14 months. But if the employment growth path is more similar to the two most recent recessions, then it would take well over eight years for employment to return to prerecession levels.
Since the recession does not appear to be ending today, this has to be seen as optimistic, and one would have to lean toward the eight-year side of things. This is scary.

Steve Benen had something similar in a piece about a Washington Monthly print story by economist James Galbraith. He quotes the editor's note by Paul Glastris:
If Galbraith is right -- and I fear he is -- it means that tens of millions more Americans will be out of work in a year or two or five, even if the stimulus creates all the jobs the president expects. It means that the big banks really are 'zombies' that will neither resume normal lending nor grow their way out of insolvency regardless of how much money the Treasury pours into them. It means that the auto companies will burn through every dime the government lends them and still not turn a profit.
(Galbraith's story is here. Essentially, he believes that the current situation may lie outside the traditional models, leaving us in a state from which proposed methods will be insufficient. Banking may not just come back, and the rest of the economy will be similarly crippled for years to come.)

It's growing increasingly difficult to look at what's happening and believe that, after some rough months, we'll just end up on the upward glide-path to success. It may well be that something is irretrievably broken, and we may just have to steel ourselves to living in a different America.

[Note: I didn't look at the comments to the Fed piece until after I finished this post, but there are some good thoughts there. Sandwichman points out the story is not told wholly by numbers:
Those red, blue and orange lines are not just measuring a change in quantity of an unvarying commodity, they are also concealing the changing characteristics of the jobs being measured. The recovery from this recession is likely to involve a much greater qualitative change in jobs than the previous recoveries. The pace of that recovery thus will reflect how quickly the process of change occurs, not simply a quantitative "return to pre-recession levels."
This part should never be forgotten when people talk about the recovery. The post-recession landscape will be seen as positive only if we end up with an increase in opportunity for all Americans, something that seems increasingly unlikely.]

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