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State of the Labor Market
Erica L. GroshenVice President and Director of Regional AffairsVice President and Director of Regional Affairs
Heldrich Center for Workforce Development, Rutgers University,
October 30 2009October 30, 2009 The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.
State of the labor marketI. The Great Recession
II. Labor market outlook
III. Are the job losses permanent or temporary?
IV ConclusionsIV. Conclusions
2
I. The Great Recession
21 months into a deep, long recessionStarted slowly in Dec. 2007, gathered steam in Sept. 2008Compared to all post-WWII recessions
Longest (previous max = 16 months)Deepest in job losses, over 5% (previous max = 3%)
Recent revisions only make it look worse
3
Nonfarm payroll job losses and duration exceed post-WWII recessionsIndex I d
1.00
1.01
1.00
1.01Index Index
0.99 0.991990
1973
0 97
0.98
0 97
0.982001
1981
0.96
0.97
0.96
0.97
2007
Official end of recession
0 94
0.95
0 94
0.952007
4
0.940 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
0.94
Months since recession began
Source: Bureau of Labor StatisticsNote: Dashed lines depict expansionary periods.
Unemployment rate approaches post-WWII high and shows biggest jump, even with a more mature workforce
Percent of the labor force seasonally adjustedPercent of the labor force, seasonally adjusted
10
12
10
12
8
10
8
10
66
2
4
2
4
0
2
0
2
67 70 73 76 79 82 85 88 91 94 97 00 03 06 09
5
Source: Bureau of Labor StatisticsNote: Shading shows NBER recessions.
67 70 73 76 79 82 85 88 91 94 97 00 03 06 09
Dramatic increase in long-term unemployment
5000
5500
Thousands of unemployed persons, seasonally adjusted
Dec-07 Sep-09
4000
4500
5000
3000
3500
000
1500
2000
2500
500
1000
1500
6
0< 5 weeks 5-14 weeks 15-26 weeks > 26 weeks
Source: Bureau of Labor Statistics
Rise in unemployment varies by demographic group
25.0
25.9Percent of the labor force unemployed
Dec-07 Sep-09
15.0
20.0 17.8
15.4
12 715.0
10.0
5 0
4.9 4.4 4 2 4.4
9.2
6.47.7
4.6 3 7
9.8 10.3
7.89.0
12.710.8
8.5
4.9
0.0
5.04.4 4.2 4.4 3.7
2.1
• All unemployment rates up substantially•Big gender gap—reflects industrial mix of job losses
7
Big gender gap reflects industrial mix of job losses•Least-educated faring worst—skills less transferable
Source: Bureau of Labor Statistics
Small businesses have been more seriously affected
Job losses by establishment size
2001 recession
500-999 Employees
1,000 or More Employees
Current recession (2007Q4-2008Q4)
100-249 Employee Firms
250-499 Employee Firms
500-999 Employees
20-49 Employee Firms
50-99 Employee Firms
2000 1500 1000 500 0 2000 1500 1000 500 0
1-9 Employee Firms
10-19 Employee Firms
8
-2000 -1500 -1000 -500 0 -2000 -1500 -1000 -500 0
Source: Bureau of Labor Statistics / Business Employment Dynamics
II. Labor market outlookSSources
Blue Chip Economic Indicators Consensus forecastSurvey of Professional Forecasters (FRB Phil)Survey of Professional Forecasters (FRB-Phil)
Labor market will deteriorate furtherCurrent (September) unemployment rate: 9 8%Current (September) unemployment rate: 9.8%Peak unemployment: over 10% (first half of 2010)
9
When will the recession be over?O t t lik l t t d i Q3 2009 l d b i t tOutput recovery likely started in Q3 2009, led by investment
Official end date will be based on output (industrial production, GDP)p , )Initial UI claims declining
10
Unemployment Insurance initial claims have been falling4 week moving average
650
7004-week moving average
550
600
450
500
350
400
300
350
11Source: Department of LaborNote: Shading shows NBER recessions.
2502000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Although job losses have begun to moderate..
7000
7500
8500
9000Private Sector Gross Job Losses (SA, Thous) JOLTS: Layoffs and Discharges: Total Private (SA, Thous)
6000
6500
8000
8500
5500
6000
7500
4500
5000
7000
40006500
992-
Q1
992-
Q3
993-
Q1
993-
Q3
994-
Q1
994-
Q3
995-
Q1
995-
Q3
996-
Q1
996-
Q3
997-
Q1
997-
Q3
998-
Q1
998-
Q3
999-
Q1
999-
Q3
000-
Q1
000-
Q3
001-
Q1
001-
Q3
002-
Q1
002-
Q3
003-
Q1
003-
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004-
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004-
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005-
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005-
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006-
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006-
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008-
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009-
Q1
009-
Q3
12
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
… hiring is at a historical low
18000
9000
16000
17000
8000
8500
14000
15000
7500
8000
Private Sector Gross Job Gains (SA
12000
13000
7000
Private Sector Gross Job Gains (SA, Thous) JOLTS: Hires: Total Private (SA, Thous)
110006500
992-
Q1
992-
Q3
993-
Q1
993-
Q3
994-
Q1
994-
Q3
995-
Q1
995-
Q3
996-
Q1
996-
Q3
997-
Q1
997-
Q3
998-
Q1
998-
Q3
999-
Q1
999-
Q3
000-
Q1
000-
Q3
001-
Q1
001-
Q3
002-
Q1
002-
Q3
003-
Q1
003-
Q3
004-
Q1
004-
Q3
005-
Q1
005-
Q3
006-
Q1
006-
Q3
007-
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008-
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008-
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009-
Q1
009-
Q3
13
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
Shape of the recoveryU l t 8% i t 2012Unemployment over 8% into 2012
Jobless recovery” for 1+ years after GDP growth resumesJobs shrink at a decreasing pace through 2009Jobs shrink at a decreasing pace through 2009 Slow growth resumes in mid-2010
Some risks to recoverySome risks to recoveryUnemployment kills nascent housing market recovery
Stimulus withdrawn too quickly (consumption orStimulus withdrawn too quickly (consumption or investment falters further)
Financial market recovery falters (no funding for y ( ginvestment)
Why a slow recovery?
14
High productivity growth, low hours worked, a banking crisis, and structural changes
Nonfarm payroll jobs—quick versus slow (jobless) recoveries
Index I d
1.00
1.01
1.00
1.01Index Index
0.99 0.991990
1973
0 97
0.98
0 97
0.982001
1981
0.96
0.97
0.96
0.97
2007
Official end of recession
0 94
0.95
0 94
0.952007
15
0.940 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
0.94
Months since recession began
Source: Bureau of Labor StatisticsNote: Dashed lines depict expansionary periods.
III. Are the recession’s job losses permanent?
Recessions mix structural and cyclical adjustmentsCyclical: temporary/reversible layoffs from pause in activityStructural: relocate jobs permanently; divorce job destruction from creationStructural: relocate jobs permanently; divorce job destruction from creation
Why it matters: Compared to recalls, replacing structural job lossTakes longer (establish new positions, hire new workers)Takes longer (establish new positions, hire new workers)Riskier, more stress for workers and firms
History: 1990 & 2001 recessions heavily structural (Groshen & Potter 2003)Permanent job losses instead of temporary layoffs More movement of jobs among industriesWhy?y
Stronger incentives for managers: mergers and takeovers, global competition, pay tied to stock performanceFewer HR constraints: fewer unions, deregulation, more temps & outsourcing
16
Mild downturns have limited impact on strong firms
Structural (permanent) versus Cyclical (temporary) job loss
Auto worker Bill
Auto workerNurse
Bill 1
Bill 2 Auto workerBill 2
-Long time to get job
Structural permanent Cyclical temporary
-Shorter time get job
17
-Retrain -No training
Which is it this time?More structural change?
Continuation of new incentives, technological change and HR practices (e.g., few cyclical temporary layoffs)
More cyclical change?Deeper recessions tend to be more cyclical—even strong firms affected
Answer: More of both--but more balanced
18
Temporary layoff usage looks similar to last 2 recessions--largely permanent job losses
Percent of the labor force seasonally adjusted
10
12
10
12Percent of the labor force, seasonally adjusted
8
10
8
10Civilian unemploymentrate
66
2
4
2
4
40%52%
25%Share of unemploymentspike from temp layoffs
0
2
0
2
67 70 73 76 79 82 85 88 91 94 97 00 03 06 09
Temporary layoff rate23%%
11% 9% 13%
19
67 70 73 76 79 82 85 88 91 94 97 00 03 06 09Source: Bureau of Labor Statistics, authors’ calculationsNote: Shading shows NBER recessions.
But… job losses more widespread by industry, consistent with higher temporary contractions
Percent of industries that are growing
6 month diffusion index
20
Source: Bureau of Labor StatisticsNote: Shading shows NBER recessions.
Job flows among industries during recent recessions
12%
14%Cyclical (temporary) Uncertain
Percent of payroll employment
8%
10%
Structural (permanent)
2.4% 2.9%3.6%
4%
6%
2.9% 2.7% 3.3%1.5% 2.4%0.8%
0.7%
0%
2%
1970 1973 1981 1990 2001 2007 est.
Deeper recessions: large cyclical flows (and quick recoveries)Recent recessions: small cyclical flows (and slow recoveries)
21
y ( )Splitting the difference, 2007 recession likely to have larger, more balanced flows.
Source: Author’s calculations
IV. ConclusionsC l i th G t R iConclusions on the Great Recession
Long and deep; unemployment will be high into 2012Unemployment will have long durationMen and small firms affected disproportionatelyCompared to 1990 and 2001, the Great Recession may have
More structural (permanent) changeo e st uctu a (pe a e t) c a geMuch more cyclical (reversible) job loss
22
Relevant New York Fed resources and activities A ti i H N U l t T kfActive in HopeNow Unemployment Taskforce
With Mortgage servicers, Fannie Mae and Freddie Mac, DOL-ETA, credit counselors, TreasuryOutputs
Cross-listing of resources (websites, call center scripts, borrower and job-seeker events, etc.): workforce system, servicers, counselorsUI duration tool to document payments for mortgage modificationsUI duration tool to document payments for mortgage modificationsForbearance or temporary assistance for unemployed homeowners
Tools for monitoring conditions on www.newyorkfed.orgUS Credit Conditions (state and county maps and data on mortgage, card, auto and student loan delinquencies)NY, NJ and NYC Current Economic IndicatorsPublications (see new Current Issues on NYC) Beige BookEmpire State Manufacturing Survey
23
p g yYield curve recession indicatorOther US and regional charts
Implications for workforce systems W kf t f t li f diWorkforce systems are on front line for speeding recovery
Workers: better job matches, shorter unemployment Society
Higher productivity and employment from fast, good matchesLower risk of feedback from labor markets to housing markets
Long expected duration of unemployment makes training more cost-effectiveImperative to help unemployed workers make sound decisions about mortgagesdecisions about mortgages
Why? Underwater mortgages have high risk of default and home loss “Toughing it out” by drawing down resources is often a bad strategyToughing it out by drawing down resources is often a bad strategy
How to help? Contact credit counselor or lenderConsult resources on www hopenow com
24
Consult resources on www.hopenow.com
REFERENCE SLIDES
25
Male-dominated industries losing the most jobs% Ch i ll l t F ti
1.0
18%
20%% Change in payroll employment Fraction
Payroll jobsLosses in Red / Fraction of jobs
0.8
14%
16%Losses in Red / Gains in Blue(Left Axis)
Fraction of jobs held by men (Right Axis)
0 4
0.6
8%
10%
12%
0.2
0.4
4%
6%
8%
0.00%
2%
Construction Goods Manufacturing Professional & Information Financial Trade & Leisure & Government Educational &
26
Construction Goods Manufacturing Professional & Business Services
Information Financial Activities
Trade & Transportation
Leisure & Hospitality
Government Educational & Health
ServicesIndustry
Source: Bureau of Labor StatisticsNote: Payroll employment change -- Dec. 2007 to Sep. 2009
Fraction of men in December 2007
Unemployment gender gap has reached new heightsP t f th l b f ll dj t d Percent
10
12
10
12Percent of the labor force, seasonally adjusted Percent
8
10
8
10Unemployment Rate: Men (SA, %)
6 6
4 4
Unemployment Rate: Women (SA %)
0
2
0
2Women (SA, %)
27
01972 1979 1986 1993 2000 2007
0
Source: Bureau of Labor StatisticsNote: Shading shows NBER recessions.
Which jobs are being created and destroyed?At present, best guides are long-term trends identified by research Replacement jobsReplacement jobs
AttritionNormal competitive shrinking/growing
New jobsLower wage industries
Retail services, for exampleBetter wage occupations (across industries)
Creativity, innovativeness, complex thought, educationPersonal contact, ability to communicate
Shrinking jobsRoutine, easily automatedTradable, easily defined and moved
28
Th d Th d
All nonfarm payroll jobs added since 2000 are gone
140,000
150,000
140,000
150,000
Thousands Thousands
120 000
130,000
120 000
130,000
110,000
120,000
110,000
120,000
March 2000
September2009
90,000
100,000
90,000
100,000 2000
70,000
80,000
70,000
80,000
29
60,00060,0001995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Vacancy Rate and Unemployment Rate4.0 4.0
Vacancy Rate Vacancy Rate
3.5 3.5
3.0 3.0
2.5 2.5
2.0 2.0
1 5 1 5
July 2009
30
1.53 4 5 6 7 8 9 10
1.5
Unemployment RateSource: Bureau of Labor Statistics
Hours declines strongly exceed payroll losses12 month percent change
Payroll jobs
31Source: Bureau of Labor StatisticsNote: Shading shows NBER recessions.
4 quarter percentage change in nonfarm business output per hour
Strong productivity growth in 2008-09, no labor hoarding4-quarter percentage change in nonfarm business output per hour
5
6
7
3
4
5
1
2
-2
-1
0
-4
-3
2
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
32
Note: Shading shows NBER recessions. Source: Bureau of Labor Statistics
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Duration of unemployment is higher than historical peaks
Median weeks unemployed seasonally adjusted
17.0
Median weeks unemployed, seasonally adjusted
2009 Apr 12.5
13.0
15.0
pMay 14.9Jun 17.9 Jul 15.7
11.0
Aug 15.4Sep 17.3
7.0
9.0
3 0
5.0
33
3.0
1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
Source: Bureau of Labor Statistics
Layoffs and discharges exceed quits for first time in data
9000
9500
7500
8000
8500
6500
7000JOLTS: Layoffs and Discharges: Total Private (SA, Thous)
JOLTS: Quits: Total Private (SA, Thous)
5500
6000
4500
5000
34Source: Bureau of Labor Statistics / Business Employment Dynamics & JOLTS
Layoffs and discharges now dominate quits
5Monthly separations per hundred employees, seasonally adjusted
4
Quits
2
3 Quits
1
2
0
Layoffs and discharges
Other separations
35Source: Bureau of Labor Statistics JOLTS
2001 2002 2003 2004 2005 2006 2007 2008 2009
55%
JOLTS Layoffs & Discharges as a Percent of Total Separations
50%
55% Separations
45%
40%
35%
30%
36
Source: Bureau of Labor Statistics / JOLTS
Displacement can have a big impact on earnings; many reallocations during 2001 recession raised earnings
20
Percent of re-employed displaced workers
M i h 17%25% of workers report real earnings
15
Mean earnings change: -17% within 10% of previous earnings
10
46% of workers report real earnings losses of 10% or more
29% of workers report real earnings gains of 10% or more
50
-100 -50 0 50 100A i t h i l kl i t f di l t kl i *
37
*Approximate change = change in log of workers’ real earnings*100; extreme values are included in the statistics, but not shown in the histogram.
Source: BLS Displaced Worker Survey (covering 1999-2001), author’s calculations.
Approximate change in real weekly earnings as a percent of pre-displacement weekly earnings*
Hours declines strongly exceed payroll losses12 month percent change
Payroll jobs
38Source: Bureau of Labor StatisticsNote: Shading shows NBER recessions.
Firms often restructure during recessionsHow?
Reorganize productionCull staffCull staffShut inefficient facilities
Why more restructuring during 1990 and 2001 recessions? St i ti fStronger incentives for managers
Threat of mergers and takeoversGlobal competitionPay tied to stock performancePay tied to stock performance
Fewer constraintsLess unionizationDeregulationDeregulationAvailable temps, outsourcing
Effective policy reduced non-fundamental turbulence
39