Commentary

Persistent Unemployment Is a Decades Long Trend

March 2011 marked the 39-month anniversary of the start of the Great Recession. By this time in every post-recession recovery since World War II, except that of 2001, the economy had experienced a net gain in jobs. But as it stands, the U.S. economy employs 5.23 percent fewer people today than it did in 2007. The net gains in employment month to month have not been enough to keep pace with population growth. We need roughly 125,000 new monthly jobs added to payrolls, but the average net gain of 115,000 jobs a month since March 2011 is still about 8 percent off from that. And the two previous years were worse.

There are some reasons for this that are particular to the current recession, including weak lending and businesses holding off on investing, but the causes of this sustained unemployment trough are much deeper.

Unfortunately, this slow return to real job growth is part of a growing trend over the past several decades. While this has been the worst post-war job recovery period, the second worst was the last recession in 2001, as can be seen in the graph above. It took 47 months from the start of that downturn for the economy to recover all job losses and return to expansion. The third worst jobless recovery period was after the 1990-91 recession. The fourth worst 1981-82 and, skipping past the short-term recession of 1980, the fifth longest return to pre-recession employment was 1973-75.

Months from Recession

Source: Bureau of Labor Statistics

In short, post-recession employment recoveries have become longer and longer over the past 50 years. Put another way, it is taking an increasing amount of time for the economy to realign resources in the market, and this is felt by nearly everyone on Main Street.

Looking at the growth in median weeks unemployed for those out of work during and following a recession we can see another aspect of this trend of deeper unemployment troughs. The graph below shows recessions from 1970 through 2010 and the peaks of median weeks unemployed.

Median Weeks Unemployed

Source: Bureau of Labor Statistics

The wake of our most recent recession is clearly the worst in a long time, and this data points to the depth of the job crisis and how long it will take to recover.

There are several of theories as to why employment recoveries are taking an increasing amount of time. The most plausible explanation, from the data that we have seen, is that while the economy has developed and changed over the past few decades public policies have not kept pace. For instance, housing subsidies may have made homeownership more attractive in the past few decades, but that has also made the labor force less mobile, which is contributing to unemployment.

Similar failures in the way wages are treated, union contracts written, and bailouts given have kept businesses alive longer than they otherwise would have been and allowed workers to avoid acquiring new skills. At the same time, technology has revolutionized productivity over the past 40 years with expanded use of machines to build cars, more global supply chain routes for Wal-Mart, and increased use of off-shore manufacturing for textiles.

Note that you are not reading this in a newspaper. Nor did a postman have to deliver this content. And have you noted that automated services are infiltrating nearly every part of our lives? Not that I’m necessarily complaining-I like scanning checks into my bank account through my iPhone. But the problem is that the American labor force has not adjusted and lacks the flexibility needed to bounce back quickly from an economic slump. As this serious misalignment of resources has gotten worse-with faux-recoveries contributing to a boom-and-bust cycle-the length of employment recovery has gotten worse.

Years of slow policy change have doomed the labor market to a long employment recovery. The trend of slow job growth is continuing, and as long as inefficient economic, housing, labor, and monetary policies manipulate resource alignment in America, we can expect the next deep recession to have an even longer recovery period.

This commentary is an extension of the April 2011 edition of Ahead of the Curve.

David Godow was a research assistant at Reason Foundation from 2010-2011. He primary focused on state and federal tax policy, including sin taxes, income taxes and corporate taxes.

Anthony Randazzo

Anthony Randazzo is a senior fellow at Reason Foundation, a nonprofit think tank advancing free minds and free markets.