Jobs are coming back too slow

jobs by Speaker Pelosi

What does “structural” mean?
[Via macroblog]

On Wednesday, Federal Reserve Bank of Atlanta President Dennis Lockhart summed up one of the hot policy questions of the moment this way:

“A necessary debate is jelling on the diagnosis of our economic troubles and the appropriate prescription. As I think about it, there are three lines of argument. One argument maintains there is not enough spending occurring—in economists’ terms, a shortfall of aggregate demand—and that this shortfall can be reduced by further stimulus. A second argument is that the economy is undergoing deep structural adjustments in industry composition, labor markets, and household finances, especially the level of debt, and these adjustments will take considerable time to play out. Finally, it can be argued that much of the uncertainty has to be dealt with in other areas of government, and monetary policy can’t do much about this kind of problem. This characterization doesn’t do full justice to the complexity of the matter, but it lays out in broad strokes what questions are in play.”

In some quarters, the opinion seems to be that the debate is effectively over. On the day of President Lockhart’s speech, Mark Whitehouse wrote this piece in the Wall Street Journal:

“In recent months, policy makers have puzzled over the inadequate rate at which job searchers and job vacancies are coming together. By some estimates, if openings were turning into hires at the rate they typically do, the unemployment rate should be about three percentage points lower than the current 9.6%….

A new paper, though, suggests employers themselves are at least part of the problem. The authors—Steven Davis of Chicago Booth School of Business, R. Jason Faberman of the Philadelphia Fed and John Haltiwanger of the University of Maryland—take a deep dive into Labor Department data and come up with an estimate of what they call ‘recruiting intensity,’ a measure of employers’ vacancy-filling efforts including advertising, screening and wage offers.

“Their finding: Employers haven’t been trying as hard as they usually do. Estimates provided by Mr. Davis suggest that over the three months ending July, recruiting intensity was about 12% below the average for the seven years leading up to the recession. Their lack of effort probably accounts for about a quarter of the shortfall in the hiring rate.”

Paul Krugman made note of the same issue a few days earlier:

“Job openings have plunged in every major sector, while the number of workers forced into part-time employment in almost all industries has soared. Unemployment has surged in every major occupational category.”

[More]

I mentioned possible reasons why jobs are not picking up as fast as the growing GDP would suggest. Here are some economists discussing the same thing. I imagine the economists believed there models that showed unemployment rate would be under 7% now, even though there were lots of economists who told them differently. I would expect that the Democrats are in the trouble they are because too many of them listened.

As David Altig, senior vice president and research director at the Atlanta Fed, wrote:

But that [pickup in business activity] may in turn depend on whether or not businesses think they can meet that demand by expanding productivity, something they have shown great aptitude for over the course of the past three years.

Companies will start hiring again when they have exhausted productivity gains from their current workers. Things indicate that there is still some ways to go before jobs gets back to where it needs to be. We need to replace 8 million jobs lost between 2007 and 2009. At 80,000 jobs a month, what we are seeing today, that would take about 8 years. Even if the rate is equal the fastest 4 years i the last decade, it will still take until 2014. But the market is expanding during those years so that by 2014, there would be another 6.8 million people looking for jobs.

So, to return to the same unemployment rate at seen in 2007, we would need to create almost 15 million jobs. At current rates, this could take more than 10 years. We need to start seeing a rapid increase in the number of jobs created if we want to see unemployment come down much at all over the next decace.

This could take quite some time.

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