US economists in a closely watched poll expect nonfarm payroll employment to grow at a rate of just 8,000 jobs per month this quarter - - down from their last estimate of a 120,500 average monthly job gain - - and 114,100 jobs per month in Q4. Meanwhile, two positive scenarios for US jobs growth shows that it may take 5 or 11.5 years for employment to return to pre-recession levels.

In the Federal Reserve Bank of Philadelphia Survey of Professional Forecasters, released Friday, the forecasters’ projections for the annual average level of nonfarm payroll employment suggest job losses at a monthly rate of 45,200 in 2010. Job gains in 2011 are seen averaging 143,800 per month. The unemployment rate is seen averaging 9.6% in the third and fourth quarter, before falling to 9.2% in 2011, 8.2% in 2012, and 7.3% in 2013.

On an annual-average over annual-average basis, the forecasters expect slower real GDP growth in 2010, 2011, and 2013.The forecasters see real GDP (gross domestic product) growing 2.9% in 2010, down from their prediction of 3.3% in the last survey. The forecasters predict real GDP will grow 2.7% in 2011, 3.6% in 2012, and 2.6% in 2013.

Brookings Institution economists, Michael Greenstone, Director, The Hamilton Project (which focuses on solutions for long-term economic issues) and Adam Looney, Senior Fellow, Economic Studies and Policy Director said in a commentary this month that in past blog posts, The Hamilton Project has explored the“job gap,” which measures the number of jobs the economy needs to create to return to pre-recession employment levels while also absorbing the 125,000 people who typically enter the labour force each month. This month, they also explore how employment levels resulting from the Great Recession compare with the employment impacts of previous recessions. 

How Do Employment Levels Compare?

The economists say to get a sense of how long the current recovery may take, they compared this recession to past recessions. The ratio of the number of people employed to the total working-age population, often called the employment-to-population ratio, is the broadest measure of employment. This ratio captures both employed and unemployed workers as well as discouraged workers who leave the labour force. Consequently, it is a more comprehensive measure of the health of the labor market than the unemployment rate alone.

The graph above plots the change in the employment-to-population ratio from the beginning of each recession for the six US recessions with the largest declines in the employment-to population-ratio since 1948 -- the first year with data from the Bureau of Labor Statistics. (The 1957 and 1960 recessions and the 1980 and 1981 recessions are combined because of their close proximity.) A lower employment-to-population ratio means that more members of the working age population are unemployed or have taken themselves out of the labor force.

The economists say that the drop in the employment-to-population ratio for this recession is already far more severe than the drop for any other recession in the past 50 years. At the lowest point, the employment-to-population ratio declined 4.7% during the Great Recession (in December 2009), more than fifty percent larger than the second biggest recorded decline during the combined 1980 and 1981 recessions in which the fraction of Americans employed fell 3.0 percent.

Just as troubling as the depth of the decline in employment is the duration of the decline - - more than 24 months. In many earlier recessions, employment resumed steady growth within two years of the start of the recession. There were exceptions to this when the economy experienced a double dip and fell quickly into another recession - - as in the 1957 or 1980 recessions. Another notable exception is the recession that started in 2001, which was not followed by a strong rebound in employment. Indeed, the 73-month period from the end of the 2001 recession to the beginning of the current recession was the weakest rebound in payroll employment growth after any recession since at least 1948. As the updated jobs gap graph shows below, these factors imply that restoring employment to pre-recession levels will require far stronger job gains than we experienced during the last recovery.

The Job Gap

After July's employment numbers, the job gap stands at 11.6 - - an increase from last month’s 11.3m job gap.

Greenstone and Looney say the US economy will need more robust growth to close this gap. If future job creation reaches about 208,000 jobs per month, the average monthly job creation for the best year for job creation in the 2000s, it will take almost 140 months (about 11.5 years) to reach pre-recession employment levels. In a more optimistic scenario with 321,000 jobs created per month, the average monthly job creation for the best year in the 1990s, it will take 59 months (almost 5 years). The chart below shows the amount of time necessary to close the job gap for different rates of job creation.

The economists say the employment situation continues to be an issue of key concern to policymakers and the American people alike. How the burden of unemployment has been distributed throughout the workforce is also emerging as an issue of focus. In the coming months, The Hamilton Project will explore the uneven impacts that the Great Recession has had on different types of workers and their communities. As part of this work, the economists will release several proposals focused on ways to aid “distressed communities” during an October 13th policy forum in Washington, DC. They say these proposals are intended to target some of the hardest hit communities and provide a range of options for helping their residents get back to work.

SEE: Finfacts, July 2010 report; OECD countries need to create 17m jobs to get employment back to pre-crisis levels; Ireland needs 318,000 jobs to return to 2007 level

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