2008 March 02 Sunday
Recession Recoveries Slower Than In Past

A good article in the New York Times looks at changing patterns in the US labor market.

In 1994, 30 million people were hired into new and existing private-sector jobs, according to the Labor Department. By 2000, the number of hires had expanded to 34 million. A year later, in the midst of the recession, hiring slackened to 31.6 million, while layoffs winnowed the work force.

In 2003, with the economy again growing, layoffs slowed, but the private sector hired only 29.8 million a figure that has nudged up only a little in the years since.

Rather than hire and risk having to fire in another downturn, companies added hours for those already on the payroll and relied more on temporary workers, said Mr. McKelvey, the Goldman Sachs economist. Manufacturing companies continued to automate, to squeeze more production out of the same number of workers, while shifting jobs to lower-cost countries like China and Mexico. For lower-skilled workers, that intensifies the competition for the jobs that remain.

Fewer low skilled jobs remain. Yet our elites relentlessly tell us there are plenty of jobs Americans won't do and that we need millions of people to come up from south of the border to do these jobs. The remaining manual labor jobs have lower salaries. Yet, as the article shows, plenty of poor Americans are desperate to get these jobs.

Some of the jobs are getting automated out of existence. Other jobs go to illegal immigrants and their children. Still other jobs move abroad to Mexico and Central America. An even larger number of jobs moving abroad go to China, India, and southeast Asia.

Economic recoveries are slowing down in their rates of lost jobs recovery. The ranks of the long term unemployed have grown.

Before 1990, it took an average of 21 months for the economy to add back the jobs shed during a recession, according to an analysis by the Economic Policy Institute and the National Employment Law Project, a worker advocacy group. Yet in the last two recessions, in 1990 and 2001, it took 31 months and 46 months, respectively, for employment levels to recover fully.

In the recessions of the early 1980s and the early 1990s, the ranks of the so-called long-term unemployed those out of work for 27 weeks or more jumped to well above 20 percent of all unemployed people. But in both cases, that share eventually settled back to close to 10 percent of the unemployed.

After the 2001 recession, however, the long-term share stayed above 20 percent from the fall of 2002 until the spring of 2005. In the months since, it has never dipped below 16 percent. In January, 18 percent of those unemployed had been without work for at least 27 weeks, according to the Labor Department.

The decline in the labor market participation rates for black men is especially worrisome. I do not see how it is going to recover. As my grandmother used to say "Idle hands are the devil's workshop."

Steve Sailer points to a Wall Street Journal article about how our political elites have decided to bail out the real estate speculators and try to prevent a full price correction in the real estate market.

Any debate about a housing bailout can be put aside -- the bailout is underway, even in advance of specific plans being shopped around Washington by Bank of America to prop up home prices with direct subsidies to homeowners whose debt exceeds the value of their houses. No, the perverse effect won't be a replay of the '30s, or even Japan's decade of stagnation in the '90s, but the latter is your model, with a little inflation thrown in. The goal: avoid foreclosures and slow the fall of home prices to market-clearing levels.

Notice that today's bailout will be the opposite of the misnamed S&L bailout of the '80s. Then, only depositors, whose money was guaranteed under federal law, were bailed out. The federal government closed down thrifts, wiped out their shareholders, seized loan collateral and dumped it back on the market, even at firesale prices.

But this time, the liquidationist school has been routed -- so named for Herbert Hoover's Treasury secretary, Andrew Mellon, who said: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. . . . It will purge the rottenness out of the system."

We are not going to purge the rottenness out of the system. What does this mean? Well, the Japanese took the same approach after their late 1980s bubble when they prevented a big series of corporate bankruptcies, bank failures, and larger scale real estate foreclosures. The result: The Japanese economy stayed in one long recession for the entire 1990s and into the 21st century.

Think about that. We've got a weak labor market with a flood of immigrants and outsources of work abroad. Plus, our political elites want to prevent the sort of market correction that will purge all the accumulated debt and bad investments. On top of that, the price of oil is going up even during a recession. We've got inflationary pressures due to dwindling oil reserves and rapidly growing Asian demand for commodities. This is not the time to stretch out a bubble.

The decision by our fearless leaders to prop up housing prices poses practical problems for would-be homeowners. You might like the convenience of owning your own home. But if you live in one of the areas where there has been a big housing bubble then home buying is unwise. The prices of houses will eventually correct. But Congress and the President have decided you are not allowed to buy at the market price. This decision of theirs will reduce labor mobility and also push more people into rentals. It will also lengthen the recession we are entering and slow the economic recovery. Work hard and try to hold on to your job.

Share |      By Randall Parker at 2008 March 02 08:23 AM  Economics Labor


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