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My Two Cents

A jobless recovery

Chris Farrell Jun 9, 2009

It sure looks like the recovery–when it comes–could be poor at generating jobs. It isn’t just the high unemplpyment rate. It’s the large number of marginally employed and underemployed works. This paper from the Federal Reserve Bank of San Francisco lays out the pessimistic case. It’s bad news for the poor since it looks like the job market will be inhospitable for years.

Although the pace of layoffs appears to be subsiding and the overall economy is showing hints of stabilization, most forecasters expect unemployment to continue to increase in coming months and to recede only gradually as recovery takes hold. In this Economic Letter, we evaluate this projection using data on three labor market indicators: worker flows into and out of unemployment; involuntary part-time employment; and temporary layoffs. We pay particular attention to how these indicators compare with data from previous episodes of recession and recovery. Our analysis generally supports projections that labor market weakness will persist, but our findings offer a basis for even greater pessimism about the outlook for the labor market. Specifically, we suggest that the relatively low level of temporary layoffs and high level of involuntary part-time workers make a jobless recovery similar to the one experienced in 1992 a plausible scenario…. This projection indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate…..

And this chart captures their gloomy outlook on the job market


My concern is that poor and low income families will be disproportionately hurt during a jobless recovery. Management willseek out at first highly educated, skilled workers, well aware that they will pick up terrific talent at a low price. But it will take years for the hiring to include less skilled workers, such as high school dropouts.

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