Well, No Net Increase In Jobs During This Recovery

WSJ.com – There’s No Such Thing As a ‘Jobless’ Recovery
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The title of this article parses words unnecessarily. This has been a jobless recovery in that there has been no net increase, in fact there’s been a net decrease, in new jobs. That doesn’t mean new jobs weren’t created, only that jobs weren’t created fast enough to replace the ones lost. This distinction distracts from an otherwise excellent article.

The author points to some recent indicators that the drought in the job market may be ending. I certainly hope so. Also, it would be nice to see the increase in productivity stay above historic levels because it will mean we can have low unemployment, an increase in income and increased profits for companies as well. We experienced it for a couple of years in the late 1990’s and it would be nice to go there again and sustain it.

First the economy has to start growing at a rate that outstrips the productivity increases for unemployment to go down. How that begins, I don’t know. Business investment has been dragging for the past several years in spite of low interest rates and I haven’t seen any evidence, yet, that business investment has picked up.

The recent rise in payroll employment provides hope that the long-awaited sustained growth of jobs has now begun. Although there was never any doubt that higher employment would eventually follow the increases in production and sales that started nearly two years ago, it is good to see it happening.

The current economic recovery has been characterized by a remarkably rapid rise in productivity — that is, in output per working hour. By using new technologies, firms have been able to produce the output that their customers demanded without hiring as many new workers as they would have at the same stage in a more traditional recovery. A recent study by the Department of Labor showed that the primary reason for the lack of job growth in the past two years has been an unusually low rate of new hiring in expanding businesses rather than an unusual number of layoffs by declining businesses.


Although the most recent dramatic productivity surge will not persist beyond the next few quarters, productivity growth is likely to continue at an above-trend pace for years to come. Companies will continue to learn new ways to use the Internet and corporate intranets to reduce the number of employees needed in activities like supply management, sales, accounting, and a wide range of clerical services.

Strong productivity growth in retailing will continue to reflect the expansion of stores like Wal-Mart and Staples with high sales volume per employee as well as the growth of online shopping. Over time, the faster productivity growth will mean a higher standard of living, with most of the productivity gain eventually taking the form of higher real wages. The historical evidence is clear that employee compensation remains at about 70% of national income as the economy grows.

Our labor market is a very dynamic one in which large numbers of people change jobs every month. The recent Department of Labor study showed that the net employment decline of 70,000 in the final quarter of 2002 was the difference between the 7.82 million workers who lost jobs in establishments that downsized or closed and the 7.75 million workers added by establishments that increased employment. It’s clear from these figures that very small variations in the rates of layoff and of new hires make the difference between declining and increasing net employment.

The author goes on to make a good point regarding unemployment benefits laws: they obviously provide a safety net for people when they lose their jobs and allow workers to be more choosy when taking a job, which is a good thing. However, the downside to unemployment benefits is that unemployment is prolonged and the extensions provided by the federal government have no doubt contributed to the higher unemployment.

Is this a net good or a net bad? I don’t know. I suppose it depends on your perspective. One thing you can count on is that it won’t be brought up in next year’s Presidential campaign and given a proper public debate. President Bush will be blamed for the sustained unemployment level when, in fact, every member of Congress that voted to extend unemployment benefits is culpable to some extent.

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