What Causes a Jobless Recovery

Lately, people have been talking about a jobless recovery. What exactly is a jobless recovery? A jobless recovery was a term coined in the early 1990s to describe the recovery of at the end of President George H. W. Bush. According to Wikipedia, "A jobless recovery or jobless growth is a phrase used by economists to describe the recovery from a recession which does not produce strong growth in employment.

Usually, when growth in the gross domestic product improves, job growth improves too. However, the last few recessions have not followed that trend. Furthermore, the recession of 2008-2009 appears that it will be a jobless recovery too. While the GDP has improved, unemployment continues to rise. Consequently, more and more economist believe this recession will be another jobless recovery.

Now that we understand what a jobless recovery means, what causes one?

• Offshoring outsourcing- When high-productivity jobs are exported, it causes lower growth in per capita income.Furthermore, some statistics suggest the outsourced manufacturing jobs have been replaced by low-paying service jobs. Consequently, now durable goods only represent 7% of our Gross Domestic Product. Although the U.S. doesn't keep statitics on outsourcing, according to estimates by a U.S. consultancy business, Forrester, job losses due to outsourcing range from 12,000 to 15,000 per month, and some estimates think it is closer to 20,000 per month. These numbers are in addition to 2 million manufacturing jobs which moved overseas between 1983 and 2000. They think unless something is done differently, by 2015, 3.3 million jobs will be lost. Cornell and the University of Massachussetts estimated that in 2001, 201,000 jobs were lost alone. However, then there are other reports that don't agre. According to National Center for Policy Analysis (NCPA), there is an 82% increase in insourced jobs compared to a 23% increase in outsourced jobs. Furthermore, the insourced jobs pay 16.5% more than the average domestic job. However, another report by the Bureau of Labor Statistics found that between 1979 and 1999, 31% of displaced workers due to outsourcing were not fully remployed, only 36% found jobs soon that were equal to or more than their lost wages, and 25% saw paycuts of 30% or more.
• Immigration - Immigrants hold down per capita income by accepting lower pay than Americans for the same job. Consequently, lower incomes usually coincide with higher debt levels. Since the consumer sector accounts for two-thirds of the economy, lower incomes and higher debt levels decrease consumer demand.
• Increased productivity - Increased productivity among employees eliminates jobs.
• Temporary employees - Cyclical business are hiring more temporary employees rather than permanent employees to cut costs.
• Bad economy - Even when the economy starts to recover, employers hold off on hiring more employees until they are assured the economy is improving. The unemployment rate is always a lagging indicator. According to the Job Opening and Labor Turnover Survey (JOLTS), vacancy and quit rates are jobs are at record lows, comparable to December 2000.At the end of August 2009, it was estimated that there was less than 2.4 million job openings which equal to 1.8% of the total jobs, both filled and unfilled. At the same time, there are more than six workers for each job opening.
• Decreased consumer spending - Before the recession, consumer spending represented 71% of the Gross Domestic Product. More unemployed people mean less people have money to spend.
• Trade defecit - The manufacturing sector represents only represents 11.5% of the GDP, and 8.7% of our country's jobs. Considering we have more than a 500 billion dollar over the past five years, the decline in our manufacturing base and manufactured goods contributes to U.S. debt. Furthermore, manufacturing jobs usually pay more than service jobs. Thus, if we have less manufacturing jobs, consumers have less to spend. The overall effect is we have a smaller economy.
• Structural changes - Structural changes are permanent shifts in the distribution of workers. Unlike layoffs because of cyclical downturns, layoffs due to structural changes are permanent. When the economy improves, workers laid off due to structural changes are not rehired.

During this recession, the cumulative job losses during the last 9 months have been greater than any other 9 month period since World War II. Since the beginning of the recession the number of unemployed individuals has increased to 15.1 million. Even though Obama's administration estimated the economic stimulus would either save or create 4 million jobs, with the job losses already, this still leaves us with a significant job loss. According to the website, Streetline, "Even if job growth returns to the rapid pace of the 1990s, during which we were adding 2.5 million public sector jobs per year (double the 2001-2007 pace), the U.S. wouldn't get back to a 5% unemployment rate until late 2017."