Just how bad is the U.S. employment situation?

Everyone knows that the job losses in the 2007-2009 recession were deep and that the recovery has been slow. Less well-known, however, is the scope of the damage relative to history.

How severe were the job losses? To provide the best picture, I look at private employment (from the BLS’s payroll survey) and divide by the total population. This removes the distortions caused by government jobs programs and also from changes in the share of the population looking for a job. I also extrapolated what this ratio would look like if private employment grew at the same average pace as it has since the trough of the crisis:

Right now, the share of the population with a job is comparable to the early 1980s, when many women did not work outside the home. Suppose we want to restore the labor market conditions of May, 2007—the peak of the last cycle—by January, 2020. What would be required?

The following chart shows the number of people employed in the private sector since January 2006, as well as what would have happened had job creation kept pace with population growth. Additionally, there are two possible projections of the future. One shows what job growth would look like if it continued at the same pace as it has since the trough in January, 2010. The other shows the required pace of job creation to return to full employment by January, 2020:

The gap between the purple line and the red line represents tens of millions of ruined lives and trillions of dollars of foregone output. Even under the “optimistic” scenario, recovery will take more than 8 years.

Is there any sign that the situation is improving? Not yet. Prior to the 1990s, U.S. recessions were short. Unemployment would spike and then quickly recede. Moreover, the efficiency of our labor markets ensured that few were out of work for very long, even when the economy was contracting. This time is different:

The average unemployed American has been without a job for nearly four times as long as the average of unemployed Americans since the end of WWII.

The best way to help the unemployed is to sharply accelerate real economic growth:

Later this week I will discuss some of the forces holding back growth, along with options for overcoming them.

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About Matthew C. Klein
I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.

One Response to Just how bad is the U.S. employment situation?

  1. Mary Johnson says:

    Excellent analysis!! Very much enjoyed reading it!!

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