Even though the economy is perking up a bit, we are not yet seeing much action when it comes to creating new, permanent jobs. There have been a few modest signs of progress in that job openings have increased a bit. And, small businesses — the main engine for job creation — are turning slightly more optimistic. Nonetheless, the overall situation for employment is still very weak. Recently, Federal Reserve Chairman Ben Bernanke opined that high levels of unemployment were going to be with us for years.
To get a sense of how this post-recession unemployment stacks up against earlier recessions, take a look at this chart from Calculated Risk. It’s a busy chart, but it shows how deep this current downturn has been compared to job losses for all recessions since World War II.
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Source: Calculated Risk
Job losses during this recession were severe as they were in the 1948 downturn (dark blue line). Back then, there was a steep decline and an equally-steep recovery. Alternately, the 2001 downturn (dark brown line) was not nearly as steep as 1948, but the recovery was also gradual. Unfortunately, in 2010 (red line), we see that job losses were severe in this recession, but even thought the economic recovery is underway, we have not seen a strong increase in job growth.
Disappointing jobs report for May
For May, new payroll jobs came in at 431,000, which is much higher than anything we have seen in a long, long time. Unfortunately, almost all of that was due to temporary hiring for the Census. Net job growth outside of Census hiring was minimal. In a few months, all those census workers will get laid off- which means jobs reports over the summer are likely to be weak as well. The chart above shows a dotted red line which nets out the Census jobs that are now going away.
The long road back
To start, we have to acknowledge that there is a huge problem in that millions and millions of Americans are out of work. This chart from the Wall Street Journal came out last year, but it still applies and it makes the point visually as to how much employment growth we will need to get America working again:
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Source: Wall Street Journal
This chart projects our current employment - unemployment situation into the future based on job growth rates from the previous economic recovery. The red zone in the chart indicates millions of people remaining unemployed for years. Only when the red zone disappears would we be back to the level of employment we had back in 2007.
To get back to the levels we saw in 2007, we would have to add around eight million jobs that have been lost, plus we would need jobs for all the new entrants to the labor pool. If the chart above is correct, this will not happen for six years or so.
Getting businesses growing should be job #1
We have heard plenty of rhetoric from politicians on this point, but very little of lasting value has been said or done. Increasing government benefits, extending unemployment benefits and all of those recent moves that have been made do mitigate the financial difficulties faced by those out of work. However, none of those factors actually helps businesses grow. Until businesses begin growing, they will not add to their payrolls. And, private sector employment is what creates wealth and prosperity in our country.
Mistakes of the Great Depression
We do not need to repeat the mistakes of the Great Depression by raising income taxes, by adding onerous new business regulations or by adopting protectionist trade policies. Doing any of those will only slow down the recovery. Unfortunately, we have done all three of those. There are numerous Federal and state tax increases on the books for 2010 and 2011. When it comes to new regulations on businesses, the list is long and growing. And, our government’s commitment to free trades has lessened dramatically. We learned these lessons in the 1930s. Unfortunately, our leaders are making similar mistakes to those made back then.
Enhancing economic freedom leads to growth
If you improve and enhance economic freedom, more prosperity ensues. If you restrict economic freedom by increasing taxes or laying on more bureaucratic red tape or putting in tariffs and other trade barriers, you inevitably reduce business activity and job growth. Some of these new regulations or taxes or trade barriers may make sense, but now is definitely not the time.
In my view, the only way we get out of this jobless recovery is by encouraging businesses to grow, to invest and to add employees. There is certainly room for disagreement on how to achieve economic growth and how to encourage business growth, but let’s not lose sight of the goal — a strong, prosperous economy and lots of permanent employment opportunities.
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