175,000 jobs a month won’t make us whole until 2020
Since late 2010, the U.S. economy has been adding an average of around 175,000 jobs per month. Because this pace has persisted for so long, there is a real danger that it’s beginning to be considered the “new normal,” the pace of growth people assume is the best the economy can do. It’s important to demonstrate just what this rate of job-growth implies for restoring the U.S. labor market to even conservative standards of health.
As of March, I estimate that the U.S. economy needs 8.8 million jobs to get back to the labor market health that we had in December 2007.
This estimate takes into account both how far we are below the Dec. 2007 jobs level (we’re still 2.8 million jobs short of what we had before the Great Recession hit) and the number of jobs we should have added since Dec. 2007 just to keep up with growth in the potential labor force (6 million jobs). Conceptually, this measure is what it would take to restore the labor market to the Dec. 2007 unemployment rate (5.0 percent) at today’s “structural” labor force participation rate, meaning it fully takes into account the fact that demographic shifts since 2007—like baby boomers hitting retirement age—and other “non-cyclical” factors mean that a somewhat lower share of the overall population should be seen as potential workers today than in 2007.1
It should be noted that getting back to the degree of labor market health that we had in December 2007 is quite conservative. The labor market from 2002-2007—the recovery from the 2001 recession—saw the weakest job growth in a recovery in at least three generations. The labor market did not come close to regaining the health of the late 1990s before the Great Recession started. Furthermore, just between December 2006 and December of 2007 the unemployment rate rose from 4.4 percent to 5.0 percent, as the economy rapidly slowed in the run-up to the Great Recession. In other words, December 2007 was by no means a jobs utopia. We nevertheless use it as a benchmark since it was the last month before the recession officially began.
The rate of job growth needed to fill in the 8.8 million jobs gap—to restore us to December 2007 labor market health—in a reasonable time frame is jaw-dropping in comparison to the 175,000 monthly job-growth we’ve been getting so far in this recovery. If we continue adding 175,000 jobs per month, we will get back to the December 2007 degree of labor market health (which from here on out I will shorthand as “the pre-recession unemployment rate”) in early 2020. In other words, at the current growth rate, the labor market will not be made whole again before the end of the decade. From beginning to end, that would mean the Great Recession led to more than twelve years of job opportunities for U.S. workers weakened by deficient demand.
If that 175,000 jobs growth rate jumps by around 25% and we add 220,000 jobs every month, we will still not get to the pre-recession unemployment rate for another five years, until early 2018. That would mean the Great Recession led to just over ten years of a weak labor market, a full lost decade, (and again, that’s if we get sustained job growth for the next five years that is 25% higher than what we’ve been getting).
If our growth rate of 175,000 jumps by more than 80% to 320,000 jobs per month, we will still not get to the pre-recession unemployment rate for three years, until early 2016. In other words, the gap in our labor market is so profound that even if we add nearly one million jobs every quarter, it will take us another three years to be made whole. And growth rates of that magnitude are nowhere on the horizon, unless there is a radical shift from policymakers.
1. Mechanically, the jobs gap is simply the difference between how many jobs we have and how many jobs we would have if the number of jobs had grown at the same rate as the potential labor force since Dec. 2007. To measure growth in the potential labor force, I use the Congressional Budget Office’s potential labor force estimates (Excel file). One of the benefits of this source is that it has ten-year projections of the potential labor force, which allows me to do calculations like the ones shown in the figure.