Mind the Gap: Why Adding 120,000 Jobs Isn’t Good News
After three months of 200,000-plus jobs gains, the employment situation for March was worse than expected: a mere 120,000 new jobs added. While the government estimated an unemployment rate of 8.2 percent — down from 8.3 percent the month before — once all the qualifications and asterisks to the jobs data are accounted for, the official unemployment rate didn’t really drop and, as we reported on Friday, is still stratospheric for a recovery.
Using our widget below, see how long it will take to close the 11.3 million jobs gap — those lost from the recession. Change the estimates of new jobs created to see when employment will recover. Or, choose a projection by economists at the Brookings Institution’s Hamilton Project based on previous jobs figures.
Data and employment projections from the Hamilton Project. Widget by Justin Myers and Vanessa Dennis/PBS NewsHour.
This is bad news not only for out-of-work folks or those trying to move from part-time into to full-time positions, but also for an economy to get back to a “healthy” state, according to Michael Greenstone, director of the Brookings Institution’s Hamilton Project.
By their reckoning, the recession cost the economy a staggering 11.3 million jobs, and at the current pace of job creation, it will take until the second decade of the 21st century to get the unemployment rate back to around 5 percent.
Greenstone calls the difference between the number of jobs that the U.S. economy needs to create in order to return to pre-recession employment levels while also absorbing the people who enter the labor force each month the “jobs gap.”
“If you took the average employment gains over the last three months and that rate of job creation continued, then the jobs gap would close by December 2019. If you took the average over the last six months, it would take until September 2021,” Greenstone told us. “The point is, the great recession moved into all of our living rooms in December 2007, and it hasn’t left yet. It may be less obnoxious of a house guest than it was, but it’s still there.”
A trader works on the floor of the New York Stock Exchange on Monday. Following a poorer than expected jobs report last Friday, stocks fell with The Dow Jones industrial average down 147 points, or 1.2 percent, in midday trading. Photo by Spencer Platt/Getty Images.
So while the 120,000 new jobs in March wasn’t terrible, in terms of closing the gap it really wasn’t great, either.
“To close the jobs gap what’s crucial to remember is we’re adding roughly 120,000 to the job labor market every month. That’s because our population is growing,” Greenstone added. “Which is why, to really make a dent in the jobs gap, you need to add jobs at a rate much higher than 120,00 per month.”
As we reported last fall, (W, V, U or L: How Is the Economic Recovery Shaping Up, Literally?) historically, this recession stands out as an anomaly in terms of employment. Two or three years into a recovery, said Greenstone, we would expect “really robust job growth,” triple (or more) what the economy has been producing.
“This is not a typical recession because it was not generated by an oil price shock, but by a financial crisis,” Greenstone said. “The problem is that financial crises are different. The lifelines of the economy get kind of charred in the process of a financial crisis, and it takes a while to repair them.”
“In a slightly broader context, what we’re seeing is a confirmation of some of the important economic research by [Ken] Rogoff and [Carmen] Reinhart which indicated that the kind of quick recovery we’ve experienced after some recessions does not occur, on average, after a financial crisis. The process of people and businesses repairing their balance sheets and banks getting enough capital on the books to begin lending in a robust way takes time. The lifelines of the economy get kind of charred in the process of a financial crisis, and it takes a while to repair them,” Greenstone said.
To put it in perspective, Calculated Risk has a chart comparing job losses from recessions since WWII (dubbed “the scariest jobs chart ever” by Business Insider).
But Greenstone continued with a caution that we have often used here on these pages: Don’t get tied up in the month-to-month variation in the data. “If I look at the last three months, the last 6 months” of job creation, Greenstone said, “they’re good in that they are large enough to bring down the jobs gap. But there’s some room for improvement.”
This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions