Where Are the Jobs?Employment Stagnation after the Great Recession

by Gary BurtlessThe Brookings InstitutionWashington, DC USA

March 6, 2012

Answer: North Dakota Employment growth, June 2010 to June 2011 = +5.1%

Answer: North Dakota Unemployment rate, December 2011 = 3.3%

Scope of the crisis: Impact and aftermath The Great Recession ranks as worst since

World War II But it was not the Great Depression

The jump in unemployment was biggest in post-was era

The persistence of high unemployment was uncommonly severe

The consequences for job losers and new job entrants have been uncommonly harsh

Economic crisis: Government responses Most special government actions were familiar:

Temporary tax reductions Extensions of unemployment benefits Increased government investment in buildings,

roads, technology Unusual federal actions:

Generous health insurance subsidies for laid-off workers

Massive grants to state governments Emphasis on protecting education & training

Economic crisis: Political reaction to government response The average voter:

“Why aren’t things better already?” The average opposition politician:

“The other guys’ program made things worse . ..And look what’s happened to the deficit !”

The average political supporter of the stimulus:{Embarrassed silence.}

Scale of the employment challenge

-12 0 12 24 36 48-1

0

1

2

3

4

5

6

Change in Unemployment Rate (Percentage Points)

2008-09 recession

1981-82 recession

Months before or after previous business cycle peak

3.4 pctg. pts.

Rise in Unemployment Rate after the End of Two Economic Expansions

49 months

+6.8 pctg. pts.

Fall in Payroll Employment after the End of Two Economic Expansions

-4.0 pctg. pts.

49 months

-12 0 12 24 36 48-8

-6

-4

-2

0

2

4

6

8

Percent Change from Business-Cycle Peak of Payroll Employment

1981-82 recession2008-09 recession

Months before or after previous business cycle peak

-12 0 12 24 36 48-2

0

2

4

6

8

10

12

Change in Unemployment Rate in 2008-09 Recession and Re-covery (Percentage Points)

Months before or after previous business cycle peak

4.2 pctg. pts.

Rise in Unemployment Rate in 2008-2009 Recession & Recovery

48 months

Las Vegas

U.S. total3.3 pctg. pts.

-12 0 12 24 36 48-16

-12

-8

-4

0

4

Percent Change from Business-Cycle Peakof Payroll Employment

Months before or after previous business cycle peak

Fall in Payroll Employment after the End of Two Economic Expansions

-9.7 pctg. pts.

48 months

Las Vegas

U.S. total-4 pctg. pts.

Loss of household wealth

Index of Real U.S. House Prices, 1975-2011

Sources: Federal Housing Finance Agency and U.S. Department of Commerce, Bureau of Economic Analysis.

1974 1978 1982 1986 1990 1994 1998 2002 2006 201060

80

100

120

140

160

180

200

60

80

100

120

140

160

180

200House prices in 1980 = 100

U.S.A.

1974 1978 1982 1986 1990 1994 1998 2002 2006 201060

80

100

120

140

160

180

200

60

80

100

120

140

160

180

200House prices in 1980 = 100 +90%

-30%

Index of Real U.S. House Prices, 1975-2011

Sources: Federal Housing Finance Agency and U.S. Department of Commerce, Bureau of Economic Analysis.

U.S.A.

Las Vegas

1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 20100

200

400

600

800

1,000

1,200

1,400

1,600

1,800

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

S&P stock index (deflated using 2005 prices)

U.S. Stock Market Prices, 1950-2011

Source: Standard and Poors composite stock index.

Ratio of Net Household Wealth to Household Disposable Income, 1952-2011

Source: Board of Governors of the Federal Reserve System, Flow of Funds Accounts.

1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 20124.0

4.5

5.0

5.5

6.0

6.5

4.0

4.5

5.0

5.5

6.0

6.5

Net wealth / Income ratio

Automatic social protectionWith cross-national comparisons

Net Income Replacement in the Initial Period after Job Loss in 21 OECD Countries, 2005

Net benefit / Net earnings in employment (%)

4145 45

49 5154

5660 62

66 67 68 68 68 68 69 69 70 71

78 80

0

10

20

30

40

50

60

70

80

90G

reec

e

New

Zea

land

Aus

tralia

Irel

and

Uni

ted

Kin

gdom

Japa

n

Bel

gium

Uni

ted

Stat

es

Aus

tria

Ger

man

y

Fran

ce

Swed

en

Net

herla

nds

Italy

Finl

and

Spai

n

Nor

way

Den

mar

k

Can

ada

Switz

erla

nd

Portu

gal

CountrySource: OECD.

Source: OECD.

Maximum Duration of Unemployment Insurance Benefits in 21 Countries, 2007

USA

Italy

Austria

Germany

Sweden

Netherlands

France

Norway

Spain

Belgium *

Australia **

0

10

20

30

40

50

6 6 79 9 10

12 1214 15

18 18

23 23 24 24 24

4855 55 55

Durat ion of unemployment benefits(in months)

90 *

**

** 12. 2***

16.8

Maximu m U .S . total i n 2 008-2012 = 22.8 mo nth s

Stimulus programs

Special programs for the hard hit Unemployment benefit extensions of up to 73

weeks - - giving a total of 99 weeks protection Length of extension tied to state unemployment rate

Increases in monthly food stamp allotments Aid to the states for social assistance to

children Doubling of budget for training the

unemployed and hard-to-employ Increases in EITC and Child Tax Credit

Special programs for the not-so-afflicted Federal income tax cuts, phased out for folks

with high income

Payroll tax cut: 2-percentage-point reduction in Social Security tax

Special grants to Social Security recipients & VA recipients who do not pay income taxes

Impact of the Recession on Disposable and Before-Tax Market Income (per person), 1997 – 2011

2007

-I

2007

-II

2007

-III

2007

-IV

2008

-I

2008

-II

2008

-III

2008

-IV

2009

-I

2009

-II

2009

-III

2009

-IV

2010

-I

2010

-II

2010

-III

2010

-IV

2011

-I

2011

-II

2011

-III

2011

-IV88

92

96

100

104

100 100 100 100

101

103

100 100

99 99

9797

98

99 99 100 100 99 99 100100

9998

94

92

9090

91

9292 92

93 93 9393

2007-IV = 100

Disposable income

Market income

Impact of the Recession and Stimulus Package on Government Transfer Payments (per person), 1997 – 2011

2007

-I

2007

-II

2007

-III

2007

-IV

2008

-I

2008

-II

2008

-III

2008

-IV

2009

-I

2009

-II

2009

-III

2009

-IV

2010

-I

2010

-II

2010

-III

2010

-IV

2011

-I

2011

-II

2011

-III

2011

-IV85

90

95

100

105

110

115

120

125

101 99 99 100101

108

103

106

113

120119 119

121 121123

125123 123

121 120

10099 98

9492

90 90 9192 92 92 93 93 93 93

2007-IV = 100

Government transfer payments

Market income

+ $1,070

- $1,080

Combined Impact of the Recession and Stimulus Package on Net Transfers from the Government, 1997:IV – 2011:IV

2007.0 2007.5 2008.0 2008.5 2009.0 2009.5 2010.0 2010.5 2011.0 2011.5 2012.0-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

Dollars per person (2005 $)

Change in tax payments (per person)

Change in government benefits (per person)

Payroll Employment in Las-Vegas-area Construction Industry, 1980-2011

1980 1985 1990 1995 2000 2005 20100

20

40

60

80

100

120

140

160

180

0

20

40

60

80

100

120

140

160

180

Las Vegas construction employment (Employment in 2000 = 100)

2008 2009 2010 2011 20120

20

40

60

80

100

Percent of average vehicle assemblies in 1994-2007

U.S. Assembly of Motor Vehicles, 2008-2011

-21%

-69%

Impact of the Recession on Disposable and Before-Tax Market Income (per person), 1997 – 2011

2007

-I

2007

-II

2007

-III

2007

-IV

2008

-I

2008

-II

2008

-III

2008

-IV

2009

-I

2009

-II

2009

-III

2009

-IV

2010

-I

2010

-II

2010

-III

2010

-IV

2011

-I

2011

-II

2011

-III

2011

-IV88

92

96

100

104

100 100 100 100

101

103

100 100

99 99

9797

98

99 99 100 100 99 99 100100

9998

94

92

9090

91

9292 92

93 93 9393

2007-IV = 100

Disposable income

Market income

Composition & timing of the stimulus

Expected Stimulus Spending under the American Recovery and Reinvestment Act of 2009, 2009-2015

Sources: Congressional Budget Office and Joint Committee on Taxation.

Billions of current dollars

$65$141

$129

$46$22

$390

0

100

200

300

400

500

600

700

2009-2010 2011-2019Fiscal years

Fiscal relief for state governments

Direct income assistance & services

Infrastructure / technology investment

$22

Sources: Congressional Budget Office and Joint Committee on Taxation.

Expected Stimulus Spending under the American Recovery and Reinvestment Act of 2009, Fiscal Years 2009-2015

Stimulus Spending as % of Potential GDP

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2009 2010 2011 2012 2013 2014 2015

Fiscal year

Fiscal relief for state governments

Direct income assistance & services

Infrastructure / technology investment

Economic Crisis & Social Protection Impact and remedies What is old:

Automatic stabilization Standard gov’t reactions –

Tax cuts / UI benefit extensions / Gov’t capital projects

What is new: Massive federal aid for state governments Unusual focus on protecting education & training

What Congress avoided: Huge investment in public works

Congress worried the spending would be too slow