The New Jobs Report Suggests America Is Years Away from a True Recovery

Agenda-Setting Financial Insight.
Nov. 2 2012 2:51 PM

The New Jobs Report Is Good News for Obama. And No One Else.

President Obama.
President Obama may be buoyed by the new jobs numbers, but nobody else will be.

Photo by Chip Somodevilla/Getty Images.

There’s something rotten with the American jobs picture – even if it’s not immediately apparent from the latest report released by the Bureau of Labor Statistics. In October the economy created 171,000 new jobs, and 84,000 more were added to previous months’ tallies. That’s good for President Barack Obama’s re-election chances. But only half the recession’s job losses have been regained, and with the recovery from each recession becoming harder to overcome than the previous one, it’s clear the next president will need to grapple with some deep structural problems to succeed.

By historical standards, America’s recovery from the 2008 recession has been anomalously weak. Between 1958 and 1982 the economy recovered quickly, with jobs lost in downturns fully regained within 10 or 11 months, including the severe recession of 1982, whose peak unemployment rate exceeded 2010’s. Something happened in the past 20 years, however. After the 1990-91 downturn the jobs market took 21 months to fully rebound. After the 2001-02 dip, full employment recovery took 31 months. This time around, 32 months have passed since the jobs nadir of February 2010, and only 53 percent of the jobs lost have been recovered.

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With this trend stretching over 30 years, and intensifying each time, it’s not obvious that bad policy alone is the culprit. Part of the problem is the decrease in manufacturing; when much of the workforce consisted of low-skilled manufacturing jobs, a rebound quickly put people back to work. Globalization may also be a factor; jobs lost to competitors from low-wage emerging markets are more difficult to recover. Trends like cheaper money, encouraging the substitution of capital for labor; and longer-lasting unemployment benefits, now 99 weeks compared to the traditional 26 weeks, have been in place long enough to bear part of the blame.

The disquieting thought is that the jobs market may not fully recover at all. The 30 months needed to recover the remainder of positions lost (without absorbing new job market entrants) is statistically destined to bump into the next recession. Either way, policy should change; measures appropriate for a job market that recovers in ten months are inadequate for an employment downturn lasting half a decade. Whoever wins on Tuesday had better start thinking fast.

Martin Hutchinson covers emerging markets and economic policy, drawing on 25 years of experience as an international merchant banker. He ran derivatives platforms for two European banks, before serving as director of a Spanish venture capital company, advisor to the Korean conglomerate Sunkyong and chairman of a U.S. modular building company