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March 17, 2009

A look at postrecession employment trends

Recent Blue Chip survey forecasts gross domestic product growth turning positive in the third quarter of 2009. But for those individuals who have lost jobs, what is foremost on their minds is when the labor market will recover. An examination of labor market performance during and after previous recessions suggests the employment recoveries vary in length, and the employment downturns are generally much longer than the actual recessions.

There have been large differences in employment patterns over previous recessions. For example, over the combined 1980 and 1981–82 recessionary periods the payroll employment loss amounted to 1.3 percent of the average employment level in the 12 months preceding the beginning of the 1980 recession. The share of employment lost was less in the 1990–91 and 2001 recessions, with 0.41 percent and 0.89 percent of jobs lost, respectively. In contrast, the share of employment lost during the current recession has been very large. Even if the recession ended today the share of jobs lost would be 2.7 percent.

Just as there has been volatility in the share of jobs lost, the time until employment has fully recovered (returned to prerecession levels) has also varied across past recessions, as shown in the chart below. The two most recent recessions, which had relatively low rates of job decline, had very drawn-out employment recoveries. In 2001, employment—growing at an average annualized rate of 0.3 percent—took 35 months (nearly three years) to return to prerecessionary levels. The average rate of employment growth was also approximately 0.3 percent after the 1990–91 recession. But because the share of employment lost was less, employment returned to prerecession levels in 19 months. Interestingly, the 1980–82 recessionary period, which had a much larger share of jobs lost, also had the quickest rate of recovery. Postrecession employment grew at an annualized rate of more than 2 percent and took just seven months to reach prerecession levels.


The question then becomes, what does previous experience imply for the path of employment after the current recession? If the current recession ended today with a 2.7 percent job decline, and postrecession employment growth resembled the recovery from the 1981–82 recession, then employment would return to prerecessionary levels in approximately 14 months. But if the employment growth path is more similar to the two most recent recessions, then it would take well over eight years for employment to return to prerecession levels. Of course, history is unlikely to repeat itself exactly, but what history does tell us is that the employment recovery will lag the recovery in overall economic activity, and possibly by a lot.

By Melinda Pitts, research economist and associate policy adviser at the Atlanta Fed

March 17, 2009 in Business Cycles , Labor Markets | Permalink


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While it may be useful to look at percentages, I don't think that is a good way to analyze the recovery in total.

If you don't account for productivity and the marginal cost that it takes to hire new workers, you miss an essential part of the picture.

The American economy is fundamentally different now (2009) than it was in 1980-82. I think that 1980-82 had more in common with previous recessions in the 30's and 40's than 1980 does with today.

It is useful to look at 2001, because at least this is an economic environment where production rates were heavily influenced by technology. However, the reasons for each decline are far different, as is fiscal response to each decline.

Hard to say how fast employment returns. If I were a benevolent dictator, I would provide lots of incentive for entrepreneurship and self employment.

Posted by: jeff | March 18, 2009 at 01:16 PM

It really all depends on what one means by "employment". Those red, blue and orange lines are not just measuring a change in quantity of an unvarying commodity, they are also concealing the changing characteristics of the jobs being measured. The recovery from this recession is likely to involve a much greater qualitative change in jobs than the previous recoveries. The pace of that recovery thus will reflect how quickly the process of change occurs, not simply a quantitative "return to pre-recession levels."

Posted by: Sandwichman | March 19, 2009 at 02:38 PM

Interesting that the employment recovery from each recession takes longer than the one before. Any chance that we are seeing an effect from globalization and the move of manufacturing from the US to cheaper locations? It would seem that a rebound in manufacturing would tend to be a relatively quick process - machines, assembly lines, even experienced labor would be readily available for re-employment. This is sort of related to Sandwichman's comment - maybe we are seeing a qualitative change in re-employment in the recoveries.

Posted by: JAW | March 24, 2009 at 08:58 AM

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