Last week, Federal Reserve Chairman Ben Bernanke said the end of the recession was in sight, and on the same day, Microsoft, long a symbol of the strength of the U.S. economy, which until this year had never had any formal layoffs, announced plans to eliminate 3,000 jobs and said more cuts could be on the way.
Both developments, though seemingly in conflict, indicate that in many ways this recession is playing out in a typical fashion, with job losses continuing to add up even as the economy shows signs of having turned a corner. As a lagging indicator of an economic slowdown, unemployment typically starts out relatively low at the beginning of a recession, increasing as the downturn deepens, and not peaking until after the recession is officially over. After opening his remarks on Tuesday with a positive perspective, Bernanke went on to say that job loss would likely continue after the official end of the recession.
Current jobs data shows no sign of improving any time soon. April unemployment of 8.9% represents the highest level since 1983, and signals a continued rapid deterioration of jobs across most industries.
There are also many reasons to fear that recovery on the jobs front could be particularly slow this time around. Bernanke himself stressed that even after the recession ends officially, overall economic growth will remain sluggish. Moreover, this particular recession has been marked by unusually high levels of unemployment, as well as long- term unemployment and underemployment. In early 2008, when unemployment was first starting to rise, EPI projected that by the end of 2009, some 20.8% of the unemployed would be long-term unemployed, meaning that they had been jobless for six months or more. That grim forecast, however, proved to be overly optimistic. Jobs data last month showed that some 27 percent of the jobless had been out of work for more than six months.
A Reuters’ analysis of Bernanke’s hopeful comments last week noted widespread consensus that the aggressive corporate cost-cutting that would help bring about economic growth could be bad news for the average worker. While corporate job cuts and spending cuts help lift profits, the story noted, they also “swell the ranks of the unemployed, reduce the wages of those who keep their jobs and hurt an already struggling economy.”
If job cuts are a core component of the cost cutting that helps businesses resume growth after a recession, it’s important to consider how long it will take for the jobs to return. Recent history suggests this is becoming a very drawn out process. The recession of 2001, for example, was followed by almost two years of continued job loss. It took four years to return to the number of jobs the economy had supported prior to the recession, resulting in the term “jobless recovery” to describe the first few years of this decade. Not until February of 2005 did the economy regain the number of jobs it had before the recession and by then, 4.4 million workers had been added to the labor force.
One more statistic that is often not addressed in jobs data reports, is wages. The real incomes of middle-class families have traditionally grown over the course of a business cycle but recent statistics show that many workers are challenged to increase their earning power even in the good times, when the economy is robust and they have jobs. At the end of the latest business cycle in 2007, for the first time since the Census Bureau began tracking this sort of data, the real incomes of middle-class families were lower than when the business cycle started out six years earlier.