What will it take to bring back 7 million jobs?
With job losses this recession the worst since the 1930s, government stimulus can only do so much.
A growing political debate over how to revive the job market has its roots in a very basic predicament: Jobs disappeared during the recession on a scale not seen since the 1930s.Skip to next paragraph
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Worry about a "jobless recovery" needs to be understood in this context. If employment recovers slowly this time – as it did after the past two US recessions – it would be a much bigger problem than it was following slumps in 1991 or 2001. That's because there's a much bigger hole to fill.
More than 5 percent of US jobs have disappeared since the recession began in 2007, some 7 million in all. That compares with job losses in the neighborhood of 1.5 to 2 percent during the previous two recessions.
No wonder there's a lively discussion in Washington about whether the $787 billion stimulus plan is working and whether new tax credits or other policies could create jobs.
Not every forecaster believes job growth will be tepid over the next year or two. But the big risk is a worst-of-two-worlds outcome: That massive job losses – the kind last seen decades ago – will be coupled with the kind of lackluster rebound seen in more recent times.
How long to get back to normal?
The goal is not just to get those 7 million jobs back. First, the economy needs to stop losing jobs – a corner that may be turned early next year. By some estimates, the economy must then add about 125,000 jobs a month, or 1.5 million a year, to keep up with the natural rate of growth in the labor force.
What does that mean for getting back near a 5 percent unemployment rate?
Here's a back-of-the-envelope calculation: If jobs could grow at a mid-1990s pace of 3 million a year, it would take about five years. If jobs grow at a mid-2000s pace of 2 million a year, it would take a lot longer.
In the past, steep job losses have often been followed by strong rebounds in jobs. What's different today is a historic erosion of household wealth: households amassed record levels of debt in the past decade, and then saw the value of homes and stock portfolios tank.
Against this backdrop, economists say the number of jobs needed is more than the government can afford to engineer.
Consider that in May, the Obama administration gauged the likely impact of its record stimulus package as creating 6.8 million "job years" (one job existing for one year) during the 2009-2012 period. Put differently, the stimulus is expected to generate jobs temporarily, peaking in 2010 at about 3 million jobs for that year.
Lawmakers weigh more fixes