Has Structural Change Contributed to a Jobless
Recovery?
Erica L. Groshen
Simon Potter with the assistance of Rebecca Sela
Federal Reserve Bank of New York
The recent recession ended in November 2001
• In July 2003, the National Bureau of Economic Research (NBER) set November 2001 as the trough
• Decision complicated by unusual “divergent behavior of output and employment”
• NBER chose output as the appropriate standard
Since November 2001, we have been in a jobless (or job-loss) recovery
-2
-1
0
1
2
3
4
5
6
7
8
-12 -9 -6 -3 Trough 3 6 9 12 15 18 21 24 27 30-2
-1
0
1
2
3
4
5
6
7
8
Source: Bureau of Labor Statistics, authors’ calculationsNote: Shading indicates length of 2001 recession.
Average of previous cycles
Early 1990s cycle
Current cycle
Months after trough
Percent change from trough Percent change from trough
What is a jobless recovery?
• Term used to describe aftermath of the early
1990s recession
• Net job growth close to zero
• Positive output growth, driven by
productivity
AGENDAIf productivity is growing fast, why haven’t jobs come back?
1. The role of structural change
2. Reasons for more structural change
3. Weak job creation or widespread job destruction?
4. Focus on manufacturing
1. The role of structural change
Recessions mix structural and cyclical adjustments
• Cyclical job losses (temporary)– Recalls expected– Can be reversed easily
• Structural job losses (permanent)– Require workers to switch firms, industries,
sectors, skills, or locations– Adding jobs requires employers to set up new
positions and find new workers
Two approaches to measuring structural vs. cyclical changes
• Temporary versus permanent layoffs
• Relocation of jobs between industries
Temporary layoffs underlay previous peaks and rapid recoveries in the unemployment rate
0
2
4
6
8
10
12
Jan-67
Jan-69
Jan-71
Jan-73
Jan-75
Jan-77
Jan-79
Jan-81
Jan-83
Jan-85
Jan-87
Jan-89
Jan-91
Jan-93
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
0
2
4
6
8
10
12
Source: Bureau of Labor Statistics, authors’ calculationsNote: Shading represents NBER recessions.
Percent of the workforce, seasonally adjusted
Civilian unemployment rate
Unemployment ratewithout temporary layoffs
Temporary layoff rate
Percent of the workforce
In the 1990s and 2001 recessions, temporary layoffs contributed little to rise in joblessness
0
2
4
6
8
10
12
Jan-67
Jan-69
Jan-71
Jan-73
Jan-75
Jan-77
Jan-79
Jan-81
Jan-83
Jan-85
Jan-87
Jan-89
Jan-91
Jan-93
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
0
2
4
6
8
10
12
Source: Bureau of Labor Statistics, authors’ calculationsNote: Shading represents NBER recessions.
Percent of the workforce, seasonally adjusted
Civilian unemployment rate
Unemployment ratewithout temporary layoffs
Temporary layoff rate
Percent of the workforce
6%11%30%52%25%
38%
How job flows classify industry adjustments during a recession and its recovery
-60
-40
-20
0
20
40
60
-60 -40 -20 0 20 40 60
Percent Job Growth in Recession
Pe
rce
nt
Jo
b G
row
th in
Re
co
ve
ry Procyclical flows Structural gains
Structural losses Counter-cyclical flows
Many industries had a cyclical experience during the early 1980s
-15
-10
-5
0
5
10
15
20
-60 -40 -20 0 20 40 60
Percent Job Growth in Recession
Pe
rce
nt
Jo
b G
row
th i
n
Re
co
ve
ry
Securities and Commodities Brokers
Primary Metal Industries
Oil and Gas Extraction
General Building Contractors
Railroad Transportation
Procyclical flowsStructural gains
Structural losses Counter-cyclical flows
Current pattern: most industries in structural quadrants
(NAICS basis, through January 2004)
-25
-20
-15
-10
-5
0
5
10
15
-20 -15 -10 -5 0 5 10
Other
Leisure & Hospitality
Professional & Business Services
FIRE
Construction
Wholesale Trade
Retail
Transportation & Utilities
Manufacturing
Educational & Health Services
Information
Internet publishing & broadcasting
Computer & electronics mfg.
Telecommunications
Air transportation
Administrative & supportservices
Educational services
Ambulatory health care services
Electrical eqpt.& appliances mfg.
Procyclical flows
Structural losses
Structural gains
Percent change in payroll jobsduring the recession (Mar 01-Nov 01)
Percent change in payroll jobsduring recovery (Nov 01-Jan 04)
Local govt.educational services
State govt. educational services
Specialty trade contractors
Food services & drinking places
Accommodations
Real estate
Apparel
Textile mills
Publishing, ex internetMachinery
Scenic & sightseeing transportation
Warehousing & storageCouriers & messengers
Hospitals
Motion picture & sound recording
Funds &Trusts
Social assistance
Membership associations
Mid-1970s
49%51%Cyclical
Structural
Source: Bureau of Labor Statistics, authors’ calculations
Early 1990s
43%57%Cyclical
Structural
Early 1980s
49%51%Cyclical
Structural
During earlier periods, structural and cyclical adjustments accounted for equal parts
Mid-1970s
51% 49%Cyclical
Structural
Source: Bureau of Labor Statistics, authors’ calculations
Early 1990s
43%57%Cyclical
Structural
Current
21%
79%
Cyclical
Structural
Early 1980s
49%51%Cyclical
Structural
Structural adjustments now dominate
2. Reasons for more structural change
• Investment overhangs
• Effective counter-cyclical policy
• Lean staffing
Investment overhangs:9 of 19 hot industries now “declining”
-25
-20
-15
-10
-5
0
5
10
-20 -15 -10 -5 0 5 10
Internet Publishing & Broadcasting Telecommunications
Administrative & Support
Educational services
ISP’s, Search Portals& Data Processing
Sightseeing Transportation
Social assistance
Funds & Trusts
Motion Pictures, Museums & Zoos
Effective counter-cyclical policy
• Tools: Monetary easing and/or expansionary fiscal policy
• Effect: – Buffers normally cyclical industries– Structural adjustments remain
• Evidence: Unusual strength of consumer durables expenditures and housing
Lean staffing: employers cut costs permanently
• Recession is an opportunity to permanently restructure, not an event to be “weathered” – Reorganize production– Cull staff– Close inefficient facilities
• Why? More incentives or pressure for managers – Corporate mergers/takeovers– Global competition– Pay tied to stock performance
• Or, fewer constraints– Less unionization– Availability of temps, outsourcing, part-time labor
4. Weak job creation or widespread job destruction?
Job destruction rates are no longer elevated; down to early-1990s levels
6.5
7
7.5
8
8.5
9
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
6.5
7
7.5
8
8.5
9
Job losses (all employers)
Source: Bureau of Labor StatisticsNote: Shading represents NBER recession.
Percent of employment, quarterly rate, seasonally adjusted
Weak job creation (falling since 2000) underlies the jobless recovery
6.5
7
7.5
8
8.5
9
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
6.5
7
7.5
8
8.5
9
Job gains (all employers)
Job losses (all employers)
Source: Bureau of Labor StatisticsNote: Shading represents NBER recession.
Percent of employment, quarterly rate, seasonally adjusted
What conditions suppress job creation?
• Uncertainty – Widespread structural change (which industries will
grow?)
– Geopolitical situation (energy prices, terrorism, etc...)
– Crisis in corporate governance and accounting standards
• Less funding for risky ventures -- no longer an issue– Stock market, IPO, venture capital, bond spreads
• Impact: Long lags between job cuts and new hires
5. Focus on manufacturing
• Temporary layoffs– cyclical pattern much muted
• Structural changes during recessions– strong shift toward structural losses
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Temporary layoffs now a much smaller factor in manufacturing recessions
Source: Bureau of Labor Statistics
Temporary layoffs as a % of manufacturing labor force
Durable Manufacturing
Non-durable manufacturing
Mid-1970s recession: a cyclical pattern in manufacturing
-6
-3
0
3
6
9
12
15
-25 -20 -15 -10 -5 0
Job Growth in Recession
Jo
b G
row
th i
n R
ec
ov
ery
Source: Bureau of Labor Statistics, authors’ calculations, SIC basis
Primary MetalsIndustrialMachinery
Lumber & Wood
Furniture & Fixtures
Electronics &Electric Equipment
Petroleum& Coal
Apparel
Leather
Transportation Equipment
Instruments
Food
FabricatedMetals
Durable GoodsNondurable Goods
1980’s recession in manufacturing, also cyclical
-10
-5
0
5
10
15
20
-40 -30 -20 -10 0 10 20 30
Job Growth in Recession
Jo
b G
row
th i
n
Re
co
ve
ry
Petroleum& CoalTobacco
Lumber and wood
Primary Metals
Leather
Printing & Publishing
TransportationEquipment
Electronics &Electric Equipment
IndustrialMachineryDurable Goods
Nondurable Goods
Source: Bureau of Labor Statistics, authors’ calculations, SIC basis
1990 recession in manufacturing: mostly structural, but industries that lost most during the recession did
best during the recovery
-6
-4
-2
0
2
-10 -8 -6 -4 -2 0 2
Job Growth in Recession
Jo
b G
row
th i
n
Re
co
ve
ry
Petroleum& Coal
Food
Lumber and wood
Leather
Electronics &Electric Equipment
TransportationEquipment
Furniture &Fixtures
Rubber &Plastics
PrimaryMetals
Fabricated Metals
Durable GoodsNondurable Goods
Source: Bureau of Labor Statistics, authors’ calculations, SIC basis
2001 recession in manufacturing was purely structural, however you look at it
(Through November 2002)
-12
-8
-4
0
4
8
-12 -10 -8 -6 -4 -2 0 2
Job Growth in Recession
Tobacco
Industrial Machinery
Leather
Electronics &Electric Equipment
Furniture &Fixtures
TransportationEquipment
PrimaryMetals
Fabricated MetalsFood
Petroleum& Coal
Chemicals
Durable GoodsNondurable Goods
-12
-8
-4
0
-16 -14 -12 -10 -8 -6 -4 -2 0 2
TransportationEquipmentPrinting
Electrical Equipment& Appliances
Fabricated Metals
Primary Metals
Textile Mills
Computer and electronic productsApparel
Leather
FoodDurable GoodsNondurable Goods
NAICS
SIC
Job
Gro
wth
in
Rec
ove
ry
2001 recession in manufacturing remains structural
(NAICS Basis, through March 2004)
-25
-20
-15
-10
-5
0-16 -14 -12 -10 -8 -6 -4 -2 0 2
ApparelTextile Mills
Leather
Computer & Electronic Products
Electrical Equipment& Appliances
Primary Metals
Food Manufacturing
Machinery
Fabricated Metals
Printing
Paper
Transportation Equipment
Durable GoodsNondurable Goods
Job growth in recovery
Job
gro
wth
in
rec
essi
on
Summary
• Why is the recovery jobless?– Predominantly permanent, structural job losses
– Slow job creation • Reasons for more structural change?
– Investment overhangs– Counter-cyclical policy– Lean staffing
• How did manufacturing fare?– Widespread structural job losses that persist
Prospects
• Job growth will require more confidence
• Robust job growth unlikely overnight—no boost from recalls
• Ultimately, restructuring could lead to a long, robust expansion, as did the jobless recovery of the 1990s
• However, growth may not be in manufacturing jobs
End of show
Note:Copies of the August 2003 Current Issues in Economics and Finance on which this talk is
based can be downloaded fromwww.newyorkfed.org
Policy options
• Targeted temporary job creation credits
• Better education/training to improve workers’ ability to adjust to change
• Public or private wage “insurance” for workers--Kletzer and Litan
• Restore confidence in corporate governance, accounting, business environment
Self-employment has surged during the recovery
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
Ma
r-6
7
Ma
r-7
0
Ma
r-7
3
Ma
r-7
6
Ma
r-7
9
Ma
r-8
2
Ma
r-8
5
Ma
r-8
8
Ma
r-9
1
Ma
r-9
4
Ma
r-9
7
Ma
r-0
0
Ma
r-0
3
Pro
po
rtio
n o
f w
ork
ers
th
at
are
se
lf-
em
plo
ye
d,
3-m
on
th m
ov
ing
av
era
ge
Is it offshoring?• A weak labor market, plus spread to new industries means workers have
higher losses and more feel at risk
• Other causes of displacement are more important: technology, taste shifts, competition, business conditions
• Numbers still small (and omit job gains from trade) compared to normal flows, and there has been no surge of job loss
• Reflects our specialization in innovation (we constantly spin off mature products, go on to the next big thing)
• Final product trade is all offshored, so intermediate-good trade means we keep some (the highest value-added) jobs
• Will grow, but within limits:– not everything can be offshored (e.g., confidential, hard to monitor, need for face-
to-face contact, etc.)– much is experimental now, some will fail– weak dollar, looser labor market will slow process
Unemployment rate by educational attainment
1
3
5
7
9
11
13
Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04
1
3
5
7
9
11
13
Less than H.S.
Some college
Source: Bureau of Labor StatisticsNote: Shading represents 2001 recession.
High school diploma
Bachelor’s degree or greater
Percent of the labor force, seasonally adjusted
Median years tenure of employed workers
2.5
3
3.5
4
4.5
1982 1987 1992 1997 2002
Female
Total
Source: Bureau of Labor Statistics
Male
Discouraged workers have not increased as a share of those out of the labor force
5%
6%
7%
8%
9%
10%
11%
Jan-94 Jan-96 Jan-98 Jan-00 Jan-02
Source: Bureau of Labor Statistics, authors’ calculations
Why are cyclical temporary layoffs disappearing?
• UI rule changes
• Manufacturing jobs declining
• Unionization declining
• Rise of temporary help services
• Opportunistic firing/closings
• More structural changes during recessions
Mid-70s
-10
-5
0
5
10
15
20
-30 -20 -10 0 10 20 30
Job Growth in Recession
Jo
b G
row
th in
Re
co
ve
ry
Source: Bureau of Labor Statistics, authors’ calculations
Cyclical Expanding Industries
Declining Industries Counter-cyclical
Early 1990s
-15
-10
-5
0
5
10
-15 -10 -5 0 5 10
Job Growth in Recession
Jo
b G
row
th in
Re
co
ve
ry
Source: Bureau of Labor Statistics, authors’ calculations
Cyclical Expanding Industries
Declining Industries Counter-cyclical
Tenporary help services employment (millions)
1
1.2
1.4
1.6
1.8
2
2.2
2.4
2.6
2.8
-12 -8 -4 0 4 8 12 16 20 24Months after trough
1
1.2
1.4
1.6
1.8
2
2.2
2.4
2.6
2.8Manpower survey (percent of firms adding jobs
minus those cutting jobs)
0
5
10
15
20
25
30
-12 -8 -4 0 4 8 12 16 20 24Months after trough
0
5
10
15
20
25
30
Measures of available jobs show uptick in second half of 2003
Source: Conference Board, Manpower Inc., BLSNote: Shading indicates length of 2001 recession.
Percent of people who say jobs are plentiful
0
10
20
30
40
50
60
-12 -8 -4 0 4 8 12 16 20 24Months after trough
0
10
20
30
40
50
60
Current cycle
Early 1990s cycle
Current cycle
Early 1990s cycle
Early 1990s cycle
Current cycle
Current cycle
Early 1990s cycle
Help wanted advertising/number of unemployed
0.1
0.3
0.5
0.7
0.9
1.1
1.3
-12 -8 -4 0 4 8 12 16 20 24Months after trough
0.1
0.3
0.5
0.7
0.9
1.1
1.3
Early 1990s turning pointCurrent cycle 1990s turning point
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Temporary Layoffs: Manufacturing
Source: Bureau of Economic Analysis
Temporary Layoffs in manufacturing, % of Total Labor Force
Durable Manufacturing
Non-durable manufacturing
-6
.00-4
.00-2
.000
.002
.004
.006
.00
-6
.00-4
.00-2
.000
.002
.004
.006
.00
Log
Pe
rio
do
gram
of no
rm
tem
p
0.00 0.10 0.20 0.30 0.40 0.50Frequency
Evaluated at the natural frequencies
Sample spectral density function
-6
.00-4
.00-2
.000.0
02.0
04.0
06.0
0
-6
.00-4
.00-2
.000.0
02.0
04.0
06.0
0
Log
Pe
rio
do
gram
of no
rm
tem
p
0.00 0.10 0.20 0.30 0.40 0.50Frequency
Evaluated at the natural frequencies
Sample spectral density function
Temporary Layoffs: Period 1
Source: Bureau of Labor Statistics
Temporary Layoffs: Period 2
12 month frequency
Long term
-6
.00-4
.00-2
.000.0
02.0
04.0
06.0
0
-6
.00-4
.00-2
.000.0
02.0
04.0
06.0
0
(m
ea
n) tl_
norm
_lf_m
an
Log
Pe
rio
do
gram
0.00 0.10 0.20 0.30 0.40 0.50Frequency
Evaluated at the natural frequencies
Sample spectral density function
-6
.00-4
.00-2
.000.0
02.0
04.0
06.0
0
-6
.00-4
.00-2
.000.0
02.0
04.0
06.0
0
(m
ea
n) tl_
norm
_lf_m
an
Log
Pe
rio
do
gram
0.00 0.10 0.20 0.30 0.40 0.50Frequency
Evaluated at the natural frequencies
Sample spectral density function
Temporary Layoffs in Manufacturing: Period 1
Source: Bureau of Labor Statistics
Temporary Layoffs in Manufacturing: Period 2
Six month frequency
12 month frequency
Long term
Quarterly frequency
1990-1991: Manufacturing Only(NAICS Basis, 22 months)
-12
-10
-8
-6
-4
-2
0
2
4
6
8
-10 -8 -6 -4 -2 0 2
Computer and electronic products
Wood products
Transportation Equipment
FurnitureFood
Plastics
Textiles
Primary Metals
Petroleum& Coal
Fabricated Metals
Machinery
Durable GoodsNondurable Goods
Current Recession: Manufacturing(NAICS Basis, through November 2002)
-12
-10
-8
-6
-4
-2
0
2
-16 -14 -12 -10 -8 -6 -4 -2 0 2
Apparel
Textile Mills
Leather
Computer and electronic products
Electrical Equipment& Appliances
Food
Printing
TransportationEquipment
Primary Metals
Fabricated Metals
Durable GoodsNondurable Goods
2001 Recession: Manufacturing (SIC Basis, through November 2002)
-12
-8
-4
0
4
8
-12 -8 -4 0
Job Growth in Recession
Job
Gro
wth
in R
eco
very
Tobacco
Industrial Machinery
Leather
Electronics &Electric Equipment
Furniture &Fixtures
TransportationEquipment
PrimaryMetals
Fabricated MetalsFood
Petroleum& Coal
Chemicals
Durable GoodsNondurable Goods