How long would a job-market recovery take?

Snapshot for January 7, 2009.

How long would a job-market recovery take?

by John Irons

The U.S. economy has lost nearly 2 million jobs since December 2007, and as of November 2008, the unemployment rate has risen to 6.7%, up from 4.7% a year ago. And the future looks bleak: full job-market recovery may take much longer than previous recoveries.

Forecasts of future unemployment rates vary, but a look at past recessions (particularly the severe early 1980s and mid-1970s downturns) suggests that unemployment in the range of 8 to 9% (or higher) would not be surprising.

Evidence from the last two recessions suggests that employment levels would not fully recover until mid-2010 or beyond. Both the 1990-91 and the 2001 recession lasted only eight months according to the National Bureau of Economic Research (NBER), but it took the labor market 11 months and 32 months, respectively, to finally hit bottom (see Chart). It took 30 months and 48 months, respectively, to regain the total number of jobs that existed prior to the downturn.1 Unfortunately, the current recession looks likely to be more severe than the last two.

(figure)

A swift and significant recovery package would help to reduce the size of the recession and speed the recovery. Considering how long the labor market may take to recover, the package should also be sustained over at least the next two years to ensure a full recovery.

Note

1. This is a modest measure of a full recovery since it does not include job creation to provide for population growth. Obviously, recovery periods by this measure would be even longer than noted here.