(2004-03-02) Ritholtz Jobless Recovery

Barry L Ritholtz on the importance of Framing the Jobless Recovery for the Presidential Election. During the interregnum, policymakers can identify the biggest obstacles towards Job Creation, and do what they can to remove them. They may determine its rising HealthCare costs, or high taxes on small businesses, or its the expenses of IRS filings for new workers, or litigation exposure or whatever. Identify the key issues, and deal with them.

He points to an article by Erica L Groshen and Simon Potter for the Federal Reserve. The data suggest that most of the jobs added during the recovery have been new positions in different firms and industries, not rehires. In our view, this shift to new jobs largely explains why the payroll numbers have been so slow to rise: Creating jobs takes longer than recalling workers to their old positions and is riskier in the current uncertain environment... Why might structural changes now account for a larger share of the job losses and gains during recessions? Although a definitive answer to this question must await further research, we outline here three possible "stories" that might explain the dominance of structural shifts: First, the structural decline observed in many industries might be a reaction to a period of overexpansion. Second, improved monetary and fiscal policy may have reduced cyclical swings in employment, leaving structural shifts as the prevailing form of change. Third, innovations in firm management may be promoting a structural shift toward leaner staffing... Annual averages of these data for 2001 and 2002 show that both job layoffs and new job creation (and vacancies) declined slightly in 2002. The drop in layoffs largely rules out the notion that job destruction is the key factor; the drop in new jobs suggests some role for weak job creation... Why might employers be restraining their hiring? Two likely causes are increased uncertainty and financial market weaknesses. See especially their chart 5 showing the portion of current employment held by industries going through structural changes.