Reconsidering A Jobless Recovery, Part 2

Last Updated Jan 14, 2010 4:22 PM EST

In the last post, we considered the hypothesis of Robert Barbera and Charles Weise, advanced in the Financial Times, who contend that jobs should make a strong recovery because U.S. employers have not permanently restructured their businesses -- they've just laid off a lot of people, doing all they can to hold on to their cash. But even if that the root cause of today's high unemployment, there still is a lot of idle capacity, and a lot of people that have dropped out of the labor force, suggesting the economy will need to create many, many jobs to reduce the rate of unemployment.

Once again, here is a graph of the U.S. labor force and total employment, to illustrate the sharp drop in jobs in this recession versus history.

[Click on the graph to see a bigger version]
But note the drop in the labor force itself - the blue line . This includes those who are working, plus those who want to, but aren't. From just shy of 155 million in May 2009, the December count was down 153.1 million - a decrease of 1.9 million.

You don't see the labor force falling like that in earlier recessions. Over that period, you would have expected it to rise by 1.1 million, to let's say 156 million, just from growth in the population. So that's 3 million people that will want to go back to work when things are better.

Now consider the Part-Time Army -- people who are working part-time, but would prefer to be working full time. (Earlier posts have addressed this topic.) The Bureau of Labor Statistics publishes a series that measures forced part-timers and others around the edges of the workplace, called U-6. I will spare you the details of the calculation, but in November 2007 about 5.7 million people were on forced part-time; in December it was 11.2 million. The difference, the people who are waiting to get the call to come back full-time: 5.5 million.

So take the 3 million that left the labor force, or never entered it, and add the 5.5 million of forced part-timers this recession has created -- 8.5 million workers. That is how many jobs will be needed to get the excess capacity back to work. (It's about four years worth of new jobs created during the 1990s.)

But that 8.5 million goes into both the numerator and denominator of the calculation, so the unemployment rate would not change much. (Readers, please feel free to challenge my math -- in this case, I'd love to be wrong.)

So, a jobless recovery? It depends on how you define the question. But it's clear that employers will have to create a lot of jobs to get the U.S. back to a net positive position.