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News : US Economy Last Updated: Aug 25, 2010 - 4:29:43 AM

US jobs market underperformed the Eurozone and other economies in the decade before the Great Recession
By Michael Hennigan, Founder and editor of Finfacts
May 6, 2010 - 7:06:53 AM

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The US jobs market underperformed the Eurozone and other economies in the decade before the Great Recession.

Alan Krueger, Assistant Secretary for Economic Policy and Chief Economist of the U S Department of the Treasury in testimony to the Joint Economic Committee of the US Congress on Wednesday, said looking over a long stretch of history, despite occasional recessionary periods, the US job market has steadily increased employment to accommodate our growing population until the 2000s.  During the 1990s (specifically, from December 1989 through December 1999), the economy gained 21.7 million payroll jobs.  By contrast, from December 1999 through December 2009, the economy lost 944,000 jobs. As Figure 1 (Tables and Charts pdf) shows, nonfarm payroll employment in the US currently stands at about the same level as it did in September 1999.  Krueger said with no net jobs gained in more than ten years, it is no wonder that many analysts are calling this period the "lost decade."  He said this poor performance is not only due to the recession at the end of the decade. Job gains in the 2000s are weak even if the losses that occurred during the recession are excluded:  Over the first 8 years of the 1990s, the economy gained almost 16 million jobs; during the first 8 years of the 2000s, however, payroll employment rose by somewhat less than 7.5 million jobs, a little less than half of the previous decade's 8-year increase.

Krueger said consider first the employment-to-population ratio, which is the fraction of the working-age population who report being employed. As Figure 2 shows, the employment-to-population ratio rose 1.3 percentage points from 1989 through 1999, and peaked in April 2000 at a postwar high of 64.7 per cent.  In contrast, during the decade of the 2000s, the ratio fell nearly 5 percentage points, and is now at a level--58.6 per cent--that was last seen immediately following the back-to-back recessions of 1980-82. The decline in the employment-to-population ratio was especially sharp after the recession began, but even prior to the recession the ratio had already given up all of its gains during the 1990s, an indication that job growth failed to keep up with population growth. 

The Huffington Post reports that just one in five people who were out of work last summer have found jobs since then.

Of more than a thousand unemployed people surveyed by Rutgers University researchers last August, just 21 per cent had landed a job by March, a follow-up survey reveals. Two-thirds remained "unemployed" according to the government's definition -- the rest gave up looking for work altogether, either going to school or retiring early.

"It's a pretty grim study," said Cliff Zukin, one of the authors of the report at the John J. Heldrich Center for Workforce Development at Rutgers.

Unemployment for people over 55 has surged by 331 per cent over the past decade, according to the seniors' group, the  AARP. Age-discrimination complaints to the Equal Employment Opportunity Commission office have been higher since the start of the current recession than in any previous two-year period.

The Los Angeles Times comments that in an astounding departure from past patterns, fully 44 per cent of the nation's 15 million unemployed have been out of work for more than six months. And the evidence suggests many of them may never completely rebuild the working lives they lost.

Never since the Great Depression has the US labour market seen anything like it. The previous high in long-term unemployment was 26 per cent in June 1983, just after the deep downturn of the early '80s. The 44 per cent rate this year translates into more than 6.5 million people.

In fact, nearly two-thirds of these workers actually have been jobless for a year or longer, new Labour Department reports show.

Federal spending on unemployment benefits could reach $168bn this year, five times the level in the years just before the recession, according to a report from Pew Charitable Trusts. In addition, tens of billions more are being spent for food assistance to unemployed workers and their families.

In an essay in Newsweek magazine last February, Jeffrey Pfeffer, the Thomas D. Dee II Professor of Organizational Behavior at the Graduate School of Business, Stanford University, wrote: "In the last decade layoffs have become America's export to the world. At a conference in Stockholm a few years ago, business executives told me that to become as competitive as America, Sweden needed to make it easier to lay people off. In Japan, lifetime employment, which never applied to most of the labour market, is under attack. There are daily calls for European countries to follow the US and make labour markets more 'flexible.' But the more you examine this universally accepted tactic of modern management, the more wrongheaded it seems to be."

SEE: Finfacts article, March 2010: US employment prospects and policies to improve them; Recovery will not be jobless but gains will be tepid - -Jobs growth in the United States in the past three decades has been largely driven by growing payrolls in the services and government sectors. For example, the number of jobs in the professional and business services category, rose by about 250% between 1980 and a peak of 18 million in January 2008 while public payrolls increased from 16.2 million in 1980 to 22.6 million at the early 2009 peak, most of the growth being in state and local area. During that time, manufacturing jobs fell from 19.3 million to 11.5 million and total US employment grew from 90 million in 1980 to 131 million in 2009.

Secretary Krueger told Congress on Wednesday that available international data suggest that job market performance in the US in the 2000s was poor not only relative to previous decades, but also relative to the experience of foreign countries with advanced economies.  

In Canada, for example, payroll employment rose by 2.3 million during the 2000s, a 19 per cent increase that largely kept pace with population growth (see Table 2). The overall employment-to-population ratio fell 1.6 percentage points during the 1990s (when the US ratio was rising).  During the most recent decade, however, the overall employment-to-population ratio rose 1.1 percentage points in Canada, while the US rate dropped sharply.  From 1989 through 2009, the overall Canadian employment-to-population ratio edged down 0.5 percentage point, as the US ratio fell by more than 3.5 percentage points.

Canada's age distribution is very similar to that in the US, with a large post-war baby boom cohort. Like the US, Canada experienced a sharp increase in employment of older workers in the 2000s. Unlike the US, however, Canada also saw a rise in employment for younger workers.  Thus, generational crowding - - when older workers hold on to jobs longer and crowd out younger workers from the labour market - -  is an unlikely explanation for the lackluster job growth in the US in the 2000s. 

In the UK, payroll employment also rose during the 2000s, as the U.K. added 1.3 million workers from 1999 to 2009, about a 5 per cent increase (see Table 3).  The overall employment-to-population ratio rose 0.6 percentage point during the 2000s, in contrast to the sharp decline in the US  Across age groups, the UK shows a pattern more similar to the US, with sharp declines in the ratio for younger workers and a large increase for older workers.  In contrast to the US, however, the employment-to-population ratio rose for prime-aged workers during the 2000s, in spite of declines associated with the worldwide recession. 

Figure 3 illustrates the change in the fraction of the population working in the US, Canada, UK and Eurozone in the 1990s and various periods of the 2000s.  (Comparable data for the Eurozone are not available for the 1990s.)  In contrast to the 1990s, he said it is clear that job growth was dramatically worse in the US than in these other countries in the 2000s, both in the period before the recent recession and in the recent recession.  A likely contributing source of the stronger job growth in Canada and the UK in the 2000s is that the education levels of their workforces increased more strongly than was the case in the US. Krueger said while the US job market produced fewer jobs (relative to the population) than in these other economically advanced countries in the 2000s, productivity growth was stronger in the US and total GDP growth was roughly comparable over the decade in all three countries.

Jürgen Stark, member of the Executive Board of the ECB and its chief economist, said last week: "...over the medium term I expect per capita GDP growth in the euro area to be similar to that in the United States, as was the case over the period 1999-2009. The difference between the average annual GDP growth rate between the United States (+2.1 per cent) and the euro area (+1.5 per cent) was mainly due to differences in population growth (at 1.0 per cent in the United States and 0.5 per cent in the euro area).

Since the launch of the euro in January 1999, 15.7 million net new jobs were created by 2008, three times more than during the same number of years before the euro and around 2 million more than in the US during the same period.

Secretary Krueger said the international data carry an important implication: The United States' poor labour-market performance in the 2000s was not inevitable.  Canada and the UK were subject to the same international trends, had access to the same technological advances and faced similar demographic shifts as the US, yet they managed to produce significant job increases during the first decade of the 2000s, while the US lost jobs. Based on reviewing other evidence, Council of Economic Advisers Chair Christina Romer has concluded that "structural factors are not central" to the poor performance of the US labour market.  Thus, there is little evidence that fundamental structural shifts have taken place that accounted for the weak record of job growth in the last decade. 

Prof. Romer last month defended the Obama administration’s program of active intervention to stimulate demand. “I find it distressing that some observers talk about unemployment remaining high for an extended period with resignation, rather than with a sense of urgency to find ways to address the problem,” she said, saying unemployment was not “the new normal.”

Businesses with fewer than 250 employees account for three-quarters of private employment in the US and Krueger said elevated level of layoffs by small establishments continued through February 2009, after which layoffs began to trend down, although they still remain somewhat high in the most recent months compared with the historical average.  From the start of the recession to last fall, hiring by small businesses fell at a moderate but steady pace which did not accelerate during the financial crisis.  Today the hiring rate by small businesses remains well below its pre-crisis levels. 

Small businesses has hit by lack of access to credit, in contrast to large companies, which have benefited from improvements in the debt markets. This has made it difficult for companies to plan expansions and has also impacted the development of start-ups

Krueger said economist Arthur Okun characterized the 1960s as a high-pressure labour market. 

"Lawrence Katz and I similarly described the 1990s as a high-pressure labour market in a 1999 Brookings Paper," he said."I think it is fair to say that we have had what could be characterized as a low-pressure labour market so far in the 2000s, punctuated by a deep recession at the end of the decade that in turn featured excess job losses as the financial crisis infected the rest of the economy.  We don't know definitively what the causes were for the low-pressure labour market so far in the 2000s.  The deep recession that began in 2007 obviously didn't help job performance.  Nevertheless, it is clear that the tax cuts that were intended to boost the economy in 2001 and 2003 did not result in better performance in the labour market than what was achieved in the 1990s, a period when government revenue increased and the deficit was reduced and eventually eliminated." 

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