What Will Labor Market Recovery Look Like?

Wall Street Journal: 

Will it be another jobless economic recovery, like after the last recession? Or will the labor market bounce back strongly, as it did after the downturns of the 1970s and 1980s?

Perhaps it will be a bit of both, concludes  a paper being presented Thursday at the Brookings Panel on Economic Activity by economists Michael Elsby of the University of Michigan, Bart Hobijn of the San Francisco Federal Reserve Bank and Ayşegűl Şahin of the New York Federal Reserve Bank.

The labor market languished after the 2001 recession, with job losses continuing until late 2003. That experience, along with the tepid job market recovery following the 1990-91 recession, convinced many economists that something had changed about the economy and that in the wake of modern recessions, job growth was much slower in the past.

But the economists’ research suggests that what was really different about the 1990-91 and the 2001 recessions wasn’t so much that they were modern, but that they were shallow.

Job losses in shallow recessions, they argue, are driven primarily by a slowdown in the rate of hiring, as opposed to layoffs. In severe recessions, job losses have historically been driven by both layoffs and a drop in the rate of hiring, with the drop in hiring persisting longer than the increase in layoffs. The latter appears to be what’s happened this time around.

So there’s a case to be made that the jobs rebound — which many economists expect will begin to register in the March employment figures — will be bigger this time than after 2001.

But the economists also note that the labor market behaved in the early part of the recession much as it did in past recessions, it has begun to look different in the past several months. “The record rise in long-term unemployment… is likely to yield a persistent overhang of workers facing long unemployment spells, slowing the recovery,” they say. The extension of unemployment compensation “is likely to have led to a modest increase in long-term unemployment,” they add.

The long-term unemployed typically have a harder time getting work, so that could make for a somewhat slower jobs recovery.

Posted via email from Jim Nichols for GA State House