Job losses and the jobless recovery

July 19, 2011
By: Eric Lundin

It seems like everyone is wondering when, or if, the U.S. economy is going to shake off the doldrums. Believe it or not, a headline from the Los Angeles Times, “What recession? It’s boom time again in Silicon Valley,” made it clear that a recovery is well under way in northern California.

The article describes the current real estate boom in the San Francisco Bay area. That’s right, real estate boom. Most of us look at national headlines and national data, but these don’t reflect trends in every locality. Granted, recessions usually are broad, affecting most industries. The oil embargo of 1973-1974 led to gasoline shortages and substantially higher fuel prices; it’s hard to find anyone who isn’t affected by the price of fuel. Likewise, the stagflation of the late 1970s ended when the Federal Reserve Board nearly doubled the federal funds rate in less than two years. The rate, which averaged 11.2 percent in 1979, jumped to 20 percent in 1981. This sort of thing affects the entire economy.

As far as employment, most industries march along together, nearly in lockstep. These include manufacturing (durable and nondurable goods), wholesale trade, retail trade, transportation and warehousing, leisure and hospitality, logging, finance, business services, construction, and state government. As a recession sets in, these industries shed workers; during a recovery, they hire workers.

However, the L.A. Times article, which cites a single industry (Internet-related technology) as the main driver, shows that some industries do well regardless of  overall economic activity. They aren’t large, but they are somewhat numerous.

Industries propelled by drivers independent from the rest of the economy, rising and falling out of sync with others, include coal mining, oil and gas extraction, utilities, and the federal government. Two other industries don’t seem to falter at all, growing steadily despite periods of expansion and recession: education and health services.

Could it be that these industries provide a buffer during recessions, propping up a faltering economy? It seems so—they buck the trend, following a hiring pattern that is different from that of all the cyclic industries. By the same token, could these jobs be critical to economic recoveries? It’s impossible to be certain, but two trends are clear.

First, the recoveries after the recessions of 2001 and 2008 have been called jobless recoveries, and for good reason. The unemployment rate dropped somewhat quickly after peaking during recessions from the 1960s to the 1990s; it fell slower after the two most recent recessions.

Second, employment in most of the aforementioned noncyclic industries has shriveled over the years. The coal mining industry shrunk by half from 1985 to 2011. Oil and gas extraction, which had about 275,000 employees in the early 1980s, had just 160,000 or so when the economy crashed in 2008. Utilities employed 725,000 people around 1990; today that sector has about 550,000 workers. Granted, these numbers aren’t big, but these jobs pay well. Mining jobs pay 23 percent more than an average job; utilities pay a whopping 47 percent more than average.

While these industries have shrunk, education and health services have grown. They pay 2 percent higher than the average job.

This isn’t to say that the loss of noncyclic jobs is the main reason the recent recoveries have been so anemic, but might help to explain why the unemployment rate takes longer to fall after recessions than it used to.
Eric Lundin

Eric Lundin

FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-227-8262