When it comes to returning the labor market to its pre-recession state of health, both the nation and New Jersey face a long road back.
Most people know the Great Recession of 2007 to 2009 was the worst employment setback in the U.S. since the Great Depression. What fewer may realize is just how long it might take to return to the pre-recession labor market conditions of 2007. Some basic number-crunching suggests that it could be seven more years until that day arrives, and even then there are no guarantees.
What’s more, with every state in the nation seeking to return its citizens to work, New Jersey will face an especially challenging and competitive interstate job market.
That’s the troubling picture emerging in data from a number of sources. And a review of that data can help explain just why the recovery of the labor market may take so long.
As determined by the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), the Great Recession started in December 2007, the peak of the last economic expansion. While NBER has yet to declare an official end date, it is likely to peg it at sometime in the third quarter of 2009, when the change in gross domestic product (GDP) — the total output of the U.S. economy — turned from negative to positive.
Yet private-sector payroll employment in the U.S. continued to decline through the end of 2009. The scale of the losses has been record-setting. The U.S. Bureau of Labor Statistics (BLS) first began compiling payroll employment statistics in 1939. In the subsequent 71 years, the two largest annual private-sector job losses occurred in 2008 and 2009. In 2008, a record was set when 3.8 million private-sector jobs were lost; that record fell the following year, when 4.7 million private-sector jobs were lost. In total, 8.5 million private-sector jobs vanished between December 2007 and December 2009.
It’s the depth of the employment deficit that makes the recovery numbers so troubling. The current deficit is measured as the sum of the heavy job losses that began in December 2007 plus the jobs needed to accommodate the demographically driven labor-force growth that took place during the downturn. To eliminate the current jobs deficit, and to accommodate future labor-force growth, it will likely take the American economy until 2017 to return to the pre-recession conditions of December 2007, when unemployment was 5 percent. Even if the nation experiences above-average annual employment growth for a sustained period of time, it’s unlikely to speed the jobs recovery.
How big a factor is the need to accommodate labor force growth? The U.S. BLS projected that the nation’s labor force would expand by 1.26 million persons per year from 2008 to 2018. Thus, the U.S. needs to add approximately 1.3 million jobs per year during this period — consisting of private-sector and government payroll employment, as well as contract (non-payroll) employment — simply to hold the unemployment rate constant.
Of that 1.3 million, approximately 900,000 would be private-sector payroll jobs, taking into account public-sector and non-payroll jobs, as well as unemployment. Therefore, in 2008 and 2009, the nation needed to created 1.8 million private-sector payroll jobs (two years at 900,000 jobs per year) to accommodate labor-force growth. Thus the total employment deficit stood at 10.3 million private-sector payroll jobs at the beginning of 2010 (8.5 million plus 1.8 million).
Further, much of the increase in labor force over the recession has yet to show up in official statistics because high unemployment rates have discouraged labor market participation. However, those individuals are likely to join the labor force (i.e., begin to seek employment) as the economy improves.
Keep in mind the two key numbers: the jobs needed to work down the existing deficit of 10.3 million private-sector payroll jobs (as of December 2009), and the need to add an additional 900,000 payroll jobs per year to satisfy future labor force growth. This will require very strong employment gains. But what rates of job growth can be anticipated?
During the powerful 1991-to-2001 national economic expansion, which lasted a record-setting 10 years, private-sector payroll employment growth was 2.15 million jobs per year. Even if we assume this pace of growth in the future — a generous assumption, given that such an annual increase would be double that (approximately1 million jobs per year) of the 2001-to-2007 expansion — the implications for a full recovery are sobering. Of the annual jump in employment growth of 2.15 million jobs, 900,000 will be needed to accommodate labor-force growth, leaving just 1.25 million jobs (2.15 million minus 900,000) per year to work off the current employment deficit.
This will require eight years and three months (10.3 million divided by 1.25 million). And that’s where the target date of 2017 for labor-market recovery comes from.
A recovery of this duration, and one with this level of sustained annual job growth, would be comparable to the two longest expansions in the nation’s history: the expansion of 1961 to 1969 (106 months), and the expansion of 1991 to 2001 (120 months). Given that the average length of the 11 economic expansions of the post-World War II era is 58.5 months, or 4.9 years, sustaining an expansion through 2017 will be a daunting task indeed.
Moreover, during the first five months of 2010, the nation added 495,000 private-sector jobs. This translates into an annual equivalent of approximately 1.2 million jobs, only 56 percent of the 2.15 million jobs per year needed to achieve full labor-market recovery by 2017.
With no easy lift from nationwide growth likely, every state is going to be desperate for job growth for its own citizens — particularly for jobs desired by a well-educated middle class that is neither super-skilled nor super-talented. New Jersey won’t be alone in this challenging position. If the state wants a place in the recovery of the labor market, its next step is clear — and urgent: do everything possible to ensure that its fiscal, business-climate and economic house is in order.