With the sharply increased level of industrial stock prices and the accumulating evidence of business recovery there are also hopes and expectations that this will ultimately be reflected in a further reduction in unemployment. The current rate is down to around 10 percent and below the recent high rate of around 11 percent.
Normally this is what one would expect, a decline in unemployment as business picks up. But there are some considerations and some history that suggest that a continued pickup in industrial production may not be accompanied by an equivalent reduction in the rate of unemployment. The administration and business leaders face a tougher recovery problem than any since the Great Depression of the 1930s.
Much of current unemployment is concentrated in the heavy industry sections of the country, the centers of production of steel and automobiles that are particularly affected by modernization and labor-saving devices, and by imports from foreign competitors. Many workers, having spent their lives in these industries, are searching for jobs in other areas, and others face the prospect of living on unemployment benefits of uncertain duration.
Of course this is not the first time that the United States has fallen into depression and unemployment and then recovered. The most recent depressions - those of 1970, 1974, and 1980 - tell us something about the kind of recovery in unemployment we may expect in the next year or two, but what they tell us is not reassuring. The 1970 recession was accompanied by an increase in unemployment from about 3 percent in 1969 to 6 percent in 1971. The 1974 recession produced an increase in unemployment from 5 percent to 9 percent and the 1980 recession was accompanied by an increase from 6 percent to 8 percent.
What kind of business recovery was reflected as subsequent unemployment rates took place? The first two years of recovery from the 1970 recession saw practically no real reduction in the 6 percent unemployment rate. Following the 1974 recession, recovery in 1975 and 1976 was marked by a reduction in the unemployment rate from 9 percent in 1975 to nearly 7.5 percent in 1976. The business recovery in 1981 saw unemployment hovering around 7.5 percent from mid- 1980 to mid-1981.
On the basis of these experiences, what may we expect following the unusually high rate of unemployment of around 11 percent reached at the beginning of this year? If we follow the best of these three experiences, namely that of 1975-76, unemployment by mid-1984 might be expected to hover around 9.5 percent, not much of an improvement.
To improve this unfavorable prospect steps will undoubtedly be taken by the Reagan administration and the Congress to provide funds to stimulate job creation. But such government efforts to provide jobs that industry is not able to provide can at best be very limited. It can provide jobs for a few hundred thousand but the need runs around 9 million.
Two views of the current unemployment situation and its prospects over the next few months are worth noting. One reflects the views of the manufacturing industry, the other of Martin Feldstein, head of the President's Council of Economic Advisers. The economist of the National Association of Manufacturers, Gross Richards, holds that May's unemployment figures do not take into account the million ''discouraged workers who dropped out of the labor force last year.'' ''When these workers reenter the job markets,'' he adds, ''unemployment could go up again.'' Mr. Feldstein predicts that unemployment would be ''somewhere in the mid-to-low nines'' by the end of this year, only somewhat lower than the official forecast of just under 10 percent by the fourth quarter of this year.
Thus the unemployment experiences of the 1970s and 1980s and these current appraisals and forecasts pose tough problems for the President, the Congress, and business leaders.