In February 2009, I delivered an address on the prospects of the U.S. growth and unemployment prospects.
Only days earlier, Christina Romer, then-chair of President Obama’s council of economic advisers, had stated that the unemployment rate had risen to 7.6%. “Prompt, well-designed fiscal policy is necessary to stop the decline and heal the economy,” Romer said.
In my address, I argued that the unemployment rate probably already exceeded 8 percent and that both the Democratic White House and the Republican opposition had gravely under-estimated the severity of the recession. I expected unemployment rate to soar to 10% or more by the end of the year (it peaked at 10.0% in October 2009).
I did not expect a full return to the pre-crisis level until around 2014-2015, when America would have to cope with the new round of instability, due to the retiring boomer generation, and the ailing health service system which cost far more and delivered much less than its OECD counterparts
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The simple reality is that U.S. labor markets are changing – and not for the better.
U.S. jobs a la Germany, Italy, and Bulgaria
The unemployment rate decreased to 8.1 percent in April, while the number of unemployed Americans dropped slightly to 12.5 million.
The unemployment rate was 7.4% for whites, 10.3% for Hispanics, and 13.0% for African-Americans.
In other words, U.S. whites live in a world of job anxiety that is typical of today’s Germany. Opportunities are barely sufficient, and the future looks uncertain. High youth unemployment does not bode well for the future.
In turn, Hispanics face a job market that looks more like its counterpart in Italy. Opportunities are insufficient. Future is bleak. And youth unemployment is very bad.
Finally, African-Americans face a job market that is like its counterparts in Bulgaria or the Baltics. Opportunities are shrinking. The future is worse than bleak. And youth unemployment is terrible.
In the late 1990s, the Clinton era benefited from the technology revolution. In the 2000s, the Bush White House exploited bubbles in the property markets and the financial sector. In the 2010s, real green shoots are few and rare.
Job growth deceleration
According to the new jobs report, only 115,000 jobs were added in April. The pace of jobs creation is less than half what it was in the first quarter.
The U.S. economy continues to operate well below its full capacity. In April, private employers added 130,000 jobs, while government employment fell by 15,000. Three of four lost jobs were in the local government sector.
The good news is that April was the 26th straight month of private-sector job creation, with payrolls growing by 4.2 million jobs since February 2010. Together, private and government jobs have grown by 3.7 million jobs over the same period. The bad news is that the loss of over half a million government jobs over this period was dominated by a loss of almost 380,000 local government jobs.
In the United States, the global financial crisis began in the real estate and financial sectors, with a highly adverse impact on several consumer durables, including the automobile industry. After the recovery measures, costly bailouts, interest rate cuts, non-traditional measures in monetary policy, as well as rounds of quantitative easing, private debt has been shifted to the public sector.
As federal government has been unable to resolve the crisis, the challenges have been delegated from Washington to the states and metropolitan centers. As a result, private sector is now creating jobs, while the public sector – particularly local government – is destroying them.
Structural shifts
U.S. labor market is undergoing a structural transformation. Despite more than two years of private-sector job growth, there were still 4.6 million fewer jobs on private payrolls in April than when the recession began in December 2007 (today there are also 13 million more Americans).
As of yet, the challenging labor markets have not unleashed waves of turmoil. As in the Eurozone, Americans are willing to wait as long as they can count on the support of the social safety net. That net, however, was created in the postwar era of sustained growth, which no longer exists
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The most comprehensive alternative unemployment rate measure — which includes people who want to work but are discouraged from looking and people working part time because they can’t find full-time jobs — was 14.5% in April;, still 5.7% higher than at the start of the recession.
By that measure, almost 23 million people remain unemployed or underemployed.
Moreover, almost half of the unemployed have been looking for work for 6 months or longer. These numbers are higher than in the early 1980s. Taking into account the extent of de-skilling and the inadequacy of retraining programs, long-term unemployment is morphing into a structural challenge.
In fact, the unemployment rate looks better than it really is because the share of the U.S. population with a job has plummeted in the recession from 62.7% in December 2007 to levels last seen in the mid-1980s. It is now around 58.4%.
In the past two months, the payroll job growth remained far behind the sustained growth of 200,000 to 300,000 jobs a month or more that is required for a robust jobs recovery.
Preparing for the $16 trillion plus debt debate
In the Eurozone, the turmoil is the direct result of a crisis in which sovereign debt is no longer sustainable in several Southern European economies. Eventually, the latter face debt restructurings, or must exit the zone.
In the United States, the debt dilemma has not been resolved; it has only been deferred. Eventually, Washington must develop a bipartisan agreement on a credible, long-term fiscal adjustment.
After months of bipartisan bickering over the debt-ceiling, America suffered its first sovereign credit-rating downgrade in early August 2011. Today, the situation is worse.
Exactly a year ago, U.S. debt exceeded $14.2 trillion. Now it amounts to more than $15.7 trillion. The U.S. economy has progressed from a bad deteriorating economy to worse.
The longer the difficult decisions must wait, the closer the economy will edge toward the fiscal cliff.
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