State of the Labor Market Erica L. Groshen Vice President and Director of Regional Affairs Vice President and Director of Regional Affairs Heldrich Center for Workforce Development, Rutgers University, October 30 2009 October 30, 2009 The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.
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State of the Labor Market
Erica L. GroshenVice President and Director of Regional AffairsVice President and Director of Regional Affairs
Heldrich Center for Workforce Development, Rutgers University,
October 30 2009October 30, 2009 The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.
State of the labor marketI. The Great Recession
II. Labor market outlook
III. Are the job losses permanent or temporary?
IV ConclusionsIV. Conclusions
2
I. The Great Recession
21 months into a deep, long recessionStarted slowly in Dec. 2007, gathered steam in Sept. 2008Compared to all post-WWII recessions
Longest (previous max = 16 months)Deepest in job losses, over 5% (previous max = 3%)
Recent revisions only make it look worse
3
Nonfarm payroll job losses and duration exceed post-WWII recessionsIndex I d
Shape of the recoveryU l t 8% i t 2012Unemployment over 8% into 2012
Jobless recovery” for 1+ years after GDP growth resumesJobs shrink at a decreasing pace through 2009Jobs shrink at a decreasing pace through 2009 Slow growth resumes in mid-2010
Some risks to recoverySome risks to recoveryUnemployment kills nascent housing market recovery
Stimulus withdrawn too quickly (consumption orStimulus withdrawn too quickly (consumption or investment falters further)
Financial market recovery falters (no funding for y ( ginvestment)
Why a slow recovery?
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High productivity growth, low hours worked, a banking crisis, and structural changes
Nonfarm payroll jobs—quick versus slow (jobless) recoveries
Source: Bureau of Labor StatisticsNote: Dashed lines depict expansionary periods.
III. Are the recession’s job losses permanent?
Recessions mix structural and cyclical adjustmentsCyclical: temporary/reversible layoffs from pause in activityStructural: relocate jobs permanently; divorce job destruction from creationStructural: relocate jobs permanently; divorce job destruction from creation
Why it matters: Compared to recalls, replacing structural job lossTakes longer (establish new positions, hire new workers)Takes longer (establish new positions, hire new workers)Riskier, more stress for workers and firms
History: 1990 & 2001 recessions heavily structural (Groshen & Potter 2003)Permanent job losses instead of temporary layoffs More movement of jobs among industriesWhy?y
Stronger incentives for managers: mergers and takeovers, global competition, pay tied to stock performanceFewer HR constraints: fewer unions, deregulation, more temps & outsourcing
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Mild downturns have limited impact on strong firms
Structural (permanent) versus Cyclical (temporary) job loss
Auto worker Bill
Auto workerNurse
Bill 1
Bill 2 Auto workerBill 2
-Long time to get job
Structural permanent Cyclical temporary
-Shorter time get job
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-Retrain -No training
Which is it this time?More structural change?
Continuation of new incentives, technological change and HR practices (e.g., few cyclical temporary layoffs)
More cyclical change?Deeper recessions tend to be more cyclical—even strong firms affected
Answer: More of both--but more balanced
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Temporary layoff usage looks similar to last 2 recessions--largely permanent job losses
But… job losses more widespread by industry, consistent with higher temporary contractions
Percent of industries that are growing
6 month diffusion index
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Source: Bureau of Labor StatisticsNote: Shading shows NBER recessions.
Job flows among industries during recent recessions
12%
14%Cyclical (temporary) Uncertain
Percent of payroll employment
8%
10%
Structural (permanent)
2.4% 2.9%3.6%
4%
6%
2.9% 2.7% 3.3%1.5% 2.4%0.8%
0.7%
0%
2%
1970 1973 1981 1990 2001 2007 est.
Deeper recessions: large cyclical flows (and quick recoveries)Recent recessions: small cyclical flows (and slow recoveries)
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y ( )Splitting the difference, 2007 recession likely to have larger, more balanced flows.
Source: Author’s calculations
IV. ConclusionsC l i th G t R iConclusions on the Great Recession
Long and deep; unemployment will be high into 2012Unemployment will have long durationMen and small firms affected disproportionatelyCompared to 1990 and 2001, the Great Recession may have
More structural (permanent) changeo e st uctu a (pe a e t) c a geMuch more cyclical (reversible) job loss
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Relevant New York Fed resources and activities A ti i H N U l t T kfActive in HopeNow Unemployment Taskforce
With Mortgage servicers, Fannie Mae and Freddie Mac, DOL-ETA, credit counselors, TreasuryOutputs
Cross-listing of resources (websites, call center scripts, borrower and job-seeker events, etc.): workforce system, servicers, counselorsUI duration tool to document payments for mortgage modificationsUI duration tool to document payments for mortgage modificationsForbearance or temporary assistance for unemployed homeowners
Tools for monitoring conditions on www.newyorkfed.orgUS Credit Conditions (state and county maps and data on mortgage, card, auto and student loan delinquencies)NY, NJ and NYC Current Economic IndicatorsPublications (see new Current Issues on NYC) Beige BookEmpire State Manufacturing Survey
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p g yYield curve recession indicatorOther US and regional charts
Implications for workforce systems W kf t f t li f diWorkforce systems are on front line for speeding recovery
Workers: better job matches, shorter unemployment Society
Higher productivity and employment from fast, good matchesLower risk of feedback from labor markets to housing markets
Long expected duration of unemployment makes training more cost-effectiveImperative to help unemployed workers make sound decisions about mortgagesdecisions about mortgages
Why? Underwater mortgages have high risk of default and home loss “Toughing it out” by drawing down resources is often a bad strategyToughing it out by drawing down resources is often a bad strategy
How to help? Contact credit counselor or lenderConsult resources on www hopenow com
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Consult resources on www.hopenow.com
REFERENCE SLIDES
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Male-dominated industries losing the most jobs% Ch i ll l t F ti
1.0
18%
20%% Change in payroll employment Fraction
Payroll jobsLosses in Red / Fraction of jobs
0.8
14%
16%Losses in Red / Gains in Blue(Left Axis)
Fraction of jobs held by men (Right Axis)
0 4
0.6
8%
10%
12%
0.2
0.4
4%
6%
8%
0.00%
2%
Construction Goods Manufacturing Professional & Information Financial Trade & Leisure & Government Educational &
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Construction Goods Manufacturing Professional & Business Services
Information Financial Activities
Trade & Transportation
Leisure & Hospitality
Government Educational & Health
ServicesIndustry
Source: Bureau of Labor StatisticsNote: Payroll employment change -- Dec. 2007 to Sep. 2009
Fraction of men in December 2007
Unemployment gender gap has reached new heightsP t f th l b f ll dj t d Percent
10
12
10
12Percent of the labor force, seasonally adjusted Percent
8
10
8
10Unemployment Rate: Men (SA, %)
6 6
4 4
Unemployment Rate: Women (SA %)
0
2
0
2Women (SA, %)
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01972 1979 1986 1993 2000 2007
0
Source: Bureau of Labor StatisticsNote: Shading shows NBER recessions.
Which jobs are being created and destroyed?At present, best guides are long-term trends identified by research Replacement jobsReplacement jobs
AttritionNormal competitive shrinking/growing
New jobsLower wage industries
Retail services, for exampleBetter wage occupations (across industries)
Creativity, innovativeness, complex thought, educationPersonal contact, ability to communicate
Shrinking jobsRoutine, easily automatedTradable, easily defined and moved
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Th d Th d
All nonfarm payroll jobs added since 2000 are gone