What to Watch on Jobs Day: The Sixth Anniversary of the Great Recession, and What the Seventh Might Look Like
Tomorrow’s release of jobs data will mark six full years since the official beginning—and four-and-a-half years since the official end—of the Great Recession. Some initial (though traditionally pretty noisy) signs indicate it could be a decent month of job growth.
My colleague Heidi Shierholz released a paper today to remind job market watchers just how far from a healthy labor market we are, and how it will take a very long time for even objectively great monthly job numbers to dig the U.S. labor market out of the deep hole it remains in.
You should read it—it has lots of great labor market indicators. I’ll just highlight one—the “jobs gap.” This is a simple measure of how many jobs the U.S. economy needs to return to immediate pre-Great Recession health (i.e., the labor market conditions that prevailed in December 2007). This jobs gap (pictured below) remains enormous. With 1.3 million jobs needed just to replace those lost during the Great Recession, and another 6.6 million jobs needed to provide work to soak up potential workers added since December 2007, the combined jobs gap is 7.9 million. This is down from its maximum value of 11.3 million reached in September 2010, but it indicates we’re less than a third of the way to full labor market recovery.
2014 should see substantially better progress made in closing this gap, mostly because the historically large fiscal drag of recent years is projected to relent pretty significantly. To be sure, fiscal policy is not going to help growth in 2014 (absent some radical change in policy), but it will harm it less. And since the fiscal drag is by far the largest reason why this recovery has been so weak in recent years, this will be a welcome change (the figure below is to remind readers of the historically unprecedented degree of austerity imposed during this economic recovery compared to all previous post-war recoveries).
So what does this all mean for policy? Is 2014 the year we can put the “stimulus versus austerity” debate behind us and forget about it?
We really shouldn’t.
For one, we still could really use stimulus. Monthly employment growth in the last 12 months averaged 191,000. At this pace of job growth, the jobs gap won’t be filled until 2019. And even the significantly better 2014 currently being forecast won’t bring a full labor market recovery for years.
Take the latest projections from the Federal Reserve that show GDP growth accelerating by just under a percentage point in 2014 relative to 2013. All else equal, this should result in roughly 110,000 extra jobs per month in 2014. So, at 300,000 jobs per month, the jobs-gap would be filled by late 2016, almost three years away. Further, it should be noted that lots can happen even between now and late 2016. If we make it that far and recovery is reached, it will have been over 7 years since the end of the Great Recession—that would actually be on the long side of stretches of time without a recession.
And, of course, one way to stomp on the good news of less projected fiscal drag in 2014 would be to fail to extend unemployment insurance benefits for the long-term unemployed, something that looks like a depressingly possible scenario.
The second reason we shouldn’t forget the lessons of the “stimulus versus austerity” debate is that recessions will always be with us, and more and more they tend to be stubborn (check out the last three recessions at the link relative to the 1980s recovery) and tend to be beyond the reach of traditional monetary policy remedies. Recently the rather confusing term “secular stagnation” has been coined to discuss the fact that advanced economies going forward could well face chronic demand shortages that traditional monetary policy can’t remedy (the better term for this debate is probably “secular demand shortfall”). Given this, we’ll need to think long and hard about alternative ways to boost demand and insure that decades of labor market dysfunction isn’t allowed to linger on following future recessions.