The Labor Market in the Great Recession:
The View from Washington
Jesse Rothstein
Associate Professor of Public Policy and Economics, UC Berkeley
Formerly:
Chief Economist, US Department of Labor
Senior Economist, Council of Economic Advisers
Outline
• Where we’ve been & where we are
• Aggregate demand or structural problems?
• Policy responses
This is an extraordinarily deep recession
Real GDP (beginning of recession = 100)
103
102
101
100
99
98
97
1974-5
96
1980
1981-3
95
1990-1
94
2001-2
93
2007-2009
92
1
2
3
4
5
6
Quarters
Source: Bureau of Economic Analysis
7
8
9
10
11
Employment Change Since the Recession Began
101
100
99
1974-6
1980
percent
98
1981-3
1990-3
97
2001-4
2007-
96
95
94
93
1
3
5
7
9
11
13
15
17
19
21
23
25
months
Source: Bureau of Labor Statistics
27
29
31
33
35
37
39
41
43
45
Monthly Change in Total Nonfarm Employment (thousands)
600
400
200
0
-200
-400
-600
-800
-1000
2007 - Nov
2008 - May
Source: Bureau of Labor Statistics
2008 - Nov
2009 - May
Year
2009 - Nov
2010 - May
Source: Office of Management and Budget (FY 2011 budget)
Forecast for U.S. Civilian Unemployment Rate
11
Percent
9
7
5
3
1999
2001
2003
2005
2007
2009
2011
2013
2015
Source: Bureau of Labor Statistics and Office of Management and Budget (FY 2011 Mid-Session Review)
2017
2019
Part 2: Is there a structural problem?
• Too little job creation?
• Skill or geographic mismatches?
• Too little job search?
Okun’s Law Over the Great Recession
Source: Daly, Mary and Bart Hobijn, “Okun’s Law and the Unemployment Surprise of 2009”
Mismatch between workers and jobs
Diffusion Index for 12-month industry employment growth
100%
75%
50%
25%
0%
1991 - Jan
1994 - Oct
Source: Bureau of Labor Statistics.
1998 - Jul
2002 - Apr
2006 - Jan
2009 - Oct
Mismatch between workers and jobs
Diffusion Index for 12-month metropolitan employment growth
100%
75%
50%
25%
0%
1980
1985
1990
1995
Source: Department of Labor, Office of the Chief Economist.
2000
2005
2010
Unemployed 27 weeks or more as a share of all
unemployed
50
45
40
35
Percent
30
25
20
15
10
5
0
1980
1985
1990
1995
Year
Source: Bureau of Labor Statistics
2000
2005
2010
New Hires and Long-Term Unemployment
4.4
7
6 months
4.2
Hires rate (left axis)
Hires rate (JOLTS)
6
4.0
5
3.8
4
3.6
3
3.4
2
3.2
3.0
Jan-00
1
Long-term unemployment (right axis)
0
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Long-term unemployment (millions)
8
Policy responses
• Three categories:
– Aggregate demand stimulus
– Structural reforms
– Labor supply policies
• Specifics
– Increase G
– Marginal incentives to hire
– Training & mobility subsidies
Growing and Shrinking Establishments
100
Share of establishments (%)
90
80
Shrinking establishments
70
60
50
Stable establishments
40
30
20
Growing establishments
10
0
1993Q1 1995Q1 1997Q1 1999Q1 2001Q1 2003Q1 2005Q1 2007Q1 2009Q1