Disturbing labor market trends

Economist John Haltiwanger of the University of Maryland is one of the nation’s leading experts on job creation and firm dynamics.  Some graphs from his recent research (also summarized here) reveal some disturbing trends in job creation that help to explain what is going on in our labor markets.

The first chart breaks down the net change in employment into its component parts — job creation (expansion by existing companies plus new companies) and job destruction (contraction by existing companies plus firms that go out of business).

Focus on the orange line — the rate of job creation.  Since the economy started to turn towards recession in the late 1990s, the rate of job creation has never recovered to the level seen throughout the 1990s.  So the large spike in unemployment that resulted from the 2008 recession was less about job destruction (which was at similar levels to the 1990s) but more about the lack of new jobs being created.  Even today, in the slow recovery we are seeing, changes in unemployment are more the result of reduced levels of job destruction — not increased levels of job creation.

The second graph shows a figure called the unemployment escape rate — the percentage of people unemployed who find a job in the next 30 days (the blue line on the graph).

What you see on the graph tends to reflect what you would expect to see — the escape rate drops during a recession (the gray shaded areas) and then recovers fairly quickly once the recession ends.  The disturbing thing about this graph is that the escape rate is trending lower in recoveries over time.  The unemployment escape rate during the best time of the 2000s was roughly equivalent to the escape rate during the recession of the early 1980s.  That has made the drop during the most recent recession tougher to overcome.  A lower escape rate translates into more people unemployed for longer periods of time.  We already had a larger than normal number of long-term unemployed before the 2008 recession, and now we have an extremely serious problem.

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