Getting Out of the Deep Unemployment Hole

High Job Losses in Recession Overshadow Economic Recovery

The economy is in recovery, notes David Madland, but with higher than estimated job losses during the recession, there’s a long road to getting Americans back to work.

Job applicants, standing, talk with job recruiters at a job fair in Santa Clara, California earlier this year. (AP/Paul Sakuma)
Job applicants, standing, talk with job recruiters at a job fair in Santa Clara, California earlier this year. (AP/Paul Sakuma)

The employment figures released by the Department of Labor today show mixed news for workers. Unemployment fell to 9.7 percent in January 2010 from 10.0 percent in December 2009. Only 20,000 jobs were lost last month, and temporary employment increased, which is a harbinger of future job growth. This slowing of labor market losses, combined with last week’s positive GDP figures, show reasonably strong signs that the economy is starting to recover. That’s the good news.

The bad news is that the same figures show that the economy lost over 1 million more jobs during the recession than previously estimated and that unemployment—especially long-term unemployment—remains at troublingly high levels. More than 14 million Americans are out of work, there are six job seekers for every available job, and 4 in 10 unemployed workers have been pounding the pavement searching for a new job for at least six months, a record level.

The Labor Department’s revisions of employment figures show that the economy shed 8.4 million jobs during the recession, instead of the 7.2 million, as previously estimated. To give a sense of how big this jobs hole is, we would need to create 350,000 jobs per month for the next 24 months just to recover what we have lost since the recession began, and that’s not even compensating for population increases. The United States has sometimes been able to create such high levels of job growth after a recession, but job growth during the most recent economic recovery was much, much slower. After the 2001 recession, it took several years before we saw any consistent job growth and 350,000 were created in only two months of the entire economic cycle.

The mixed news from today’s jobs report continued on many levels, but the overall direction of the labor market is trending up. The employment-to-population ratio—an indication of total labor market strength—rose slightly to 58.4 in January from 58.2 the previous month. The average workweek increased by 0.1 hour to 33.9 hours for the month, indicating that companies are starting to need additional labor. And temporary help increased by 52,000 in January and has averaged nearly that level for the past four months. As the figure below shows, rising temporary help is often an early indicator of increasing payroll in future months.

temporary help chart

But long-term unemployment hit a new record again this month. Over 41 percent of the unemployed have been looking for a job for 27 weeks or more, a post-World War II high. And though total unemployment was down, that was in part because more people have stopped looking for work. There were 2.5 million people in January 2010 only marginally attached to the labor market—those who would like a job but didn’t actively look during the past 4 weeks. This is an increase of 400,000 from a year ago.

long-term unemployment chart

Women inched closer to parity with men, and now hold 49.9 percent of all jobs. Much of this good news for women is unfortunately because job losses have been so harsh for men, and relatively few men are working. The employment-to-population ratio for men 20 years and older is now 66.4 percent, meaning that only two-thirds of adult men have a job right now. Prior to this recession that figure had never fallen below 70 percent since World War II. This is a remarkable drop in men’s employment and we cannot move forward until we’ve addressed this problem.

Yet job losses continued in male-dominated industries last month. Construction lost 75,000 more jobs in January—the 31st month of employment declines—and transportation and warehousing employment fell by 19,000.

State and local government layoffs were a particular drag on the economy. State governments shed 18,000 workers and local government 23,000. And over 15,000 of these state and local government job losses were in education.

What our economy and workers need now is another boost in spending to ensure that job growth is faster and more widespread throughout the economy. A few sectors of the economy are creating jobs, but most businesses are not hiring because they do not see sufficient demand for their goods and services. A basic step to boosting demand is to get the unemployed back to work. Employing more people doesn’t just get those workers back on the job; it affects the momentum of the economy, which ultimately creates the cycle of private sector job creation that we need. Unemployed workers have few dollars with which to purchase goods and services, and giving them a job injects an immediate boost to their family budget and our national economy. We need to build on the successes of the American Recovery and Reinvestment Act and use scarce federal dollars in the most efficient way to boost demand and get the unemployed back to work.

The Center for American Progress has put out such a plan, which calls for infrastructure investment and aid to state and local governments, along with direct investments in job creation through initiatives such as expanding our national service programs. And there is growing momentum in the White House and on Capitol Hill for these types of job creation policies.

President Obama laid out his ideas for promoting immediate job growth in his State of the Union address: $30 billion from TARP for community banks, a jobs tax credit for small businesses who hire workers or raise wages, eliminating the capital gains tax credit on all small business investment, putting Americans back to work building infrastructure, and rebates for home efficiency.

The House of Representatives has already passed a jobs bill that would redirect $75 billion of TARP funds toward infrastructure investment and aid to state and local governments, which would immediately boost demand in the economy.

The Senate now needs to act. Senate Majority Leader Harry Reid announced a package of job creation bills this past week that the Senate will soon take up. The bills are set to include improved access to credit for small businesses, investments in infrastructure and energy efficiency, aid to local governments, increases in youth summer job programs, and targeted tax incentives to spur immediate job growth.

Congress is taking action on job creation legislation. And this months’ jobs numbers are a stark reminder that they need to do so quickly. The recovery is just starting to take hold, but we are in much a more massive jobs hole than previously thought and need rapid job creation to get out of it.

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David Madland

Senior Fellow; Senior Adviser, American Worker Project