During the past two years — what should be the fat part of the U.S. economic recovery — job growth has averaged about 150,000 jobs a month. While that is better than nothing and better than losing jobs, the pace of job creation is way too slow given the depressed state of the American labor market.
Take into account the following: a) we need roughly 100,000 jobs a month to tread water, b) the millions still unemployed due to the Great Recession, c) the millions of discouraged workers who have dropped out of the labor force, d) the abnormal number of part-timers who would prefer full-time work.
Put it all together, says JPMorgan economist James Glassman, “and it likely will require businesses to create 10½ million new jobs above and beyond the 130,000 needed every month to restore the economy to where it was in 2007.”
And at 150,000 jobs a month, Glassman concludes, “it would take take 44 years to absorb all the unemployment.”
– job gains of 175,000 monthly would take another 15 years to recover;
– nonfarm payroll gains of 200,000 monthly would return the economy to full employment in 12 years, by 2024;
– monthly job gains of 250,000 would do the job in seven more years, by 2019; and payroll gains of 300,000 monthly would restore the economy to full employment in five years.
That’s the daunting employment challenge America faces. And quibble with the forecasts if you want, but the problem won’t get solved anytime soon by an economy slowly shifting back to trend growth of (hopefully) 3% or so.
We need acceleration. We need escalation. We need some hypergrowth years of 4% or more. Achieving that will require, among other things, a tax policy that rewards investment not lobbying, an immigration policy that attracts innovators and entrepreneurs, and fixing entitlements so they are a true safety net rather than a debt trap.
Indeed, just achieving 3% growth long-term, given demographics, will require pro-innovation policies across government.
Here is a bit more of Glassman’s analysis:
1. Employment will need to expand 130,000 monthly just to tread water (to keep unemployment from rising).
2. In addition to that, of the 12.3 million people currently unemployed, 5 million (see the red band in the figure) represents cyclical unemployment—that is, the number above and beyond the 4.5 percent unemployment rate that seems to be consistent with stable inflation, where the economy was before the recession (the normal percentage of unemployment is represented by the brown band in the figure on the previous page).
3. If employment continued to expand by only 150,000 monthly going forward, 20,000 more than the normal growth of the labor force, it would take 20 years to whittle excess unemployment down to something more normal.
4. In addition to that, there are roughly 3½ million people under the age of 55 who were working in 2007 and no longer have a job (that population is represented by the light blue band in the figure on the previous page). A fair number of those dropping out likely reflects a natural demographic trend as the outsized Baby Boom generation moves into retirement age and this is reflected in the green bottom band in the figure on the previous page.
4. There’s one more piece to the job market challenge: 8.3 million people are working part time jobs because they can’t find full time work; in good times 1.75 percent of the population, 4.3 million people in today’s terms, typically would be in this predicament; so, roughly 4 million more than normal are working part time for economic reasons. Four million more-than-normal part time jobs may be equivalent to 2 million full time jobs needed to tap the potential of these people.
Put it all together and it likely will require businesses to create 10½ million new jobs above and beyond the 130,000 needed every month to restore the economy to where it was in 2007. (That comprises the 5 million excess who are already counted as unemployed, the 3½ million young dropouts, and the 2 million full-time equivalent jobs to take address the underemployed.)