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I was reviewing some recent unemployment numbers from an AP article (article was bookmarked on my Delicious.com page). The author of the article quoted some uncredited economists who said it would take “several years” for the job market to recover to the historic 5-6% unemployment rate. “Several years” sounded really optimistic to me, so I did some calculations based on the numbers in the article and monthly job creation statistics from the Bureau of Labor Statistics.

First, the raw numbers: There are about 14 millions unemployed workers in the US right now. An additional 2.6 million people would be listed as unemployed if they hadn’t stopped looking for work. There are 8.8 million Americans who are ‘under-employed’–i.e. working part-time though they wish to work full-time. It should also be remembered there are between 120,000 and 150,000 new entrants each month into the job market. They are not accounted for by unemployment statistics because they have never been employed. Since the start of the great recession, at minimum, there should be about 5.2 million of these people also looking for work.

So, at a bare minimum, there are between 25 and 30 million Americans who wish to work but aren’t right now. If we only focus on the unemployed and looking plus the unemployed and not currently looking, there are about 16.6 million people we need to account for in our “several years” prediction. Let’s say our goal is to get down to 6% unemployment, that is not quite cutting this number in half. So we need to add 7 million jobs in 36 months (rough estimate). Not too bad, that’s just under 200,000 jobs a month. But, we need to account for new job entrants too. So we need to add 320,000 jobs per month.

Between 2001 and 2011, we added at least 320,000 jobs or more a month just 6 times. Six times, in ten years. That’s 6/120 months or 1/20 or 5% of the time we were adding jobs at this rate. In fact, in the boom of the 1990’s (probably the best circumstances we could wish for right now) the US was averaging about 250,000 jobs a month. And guess what? we still haven’t accounted for the 8.8 million part-timers or those new entrants who walked into the job market between 2008 and 2011 who never had a chance at employment in the first place.

If we use realistic numbers (those from the 1990’s), the economy might be able to average 250,000 new jobs per month. About half these jobs will be absorbed by the new job entrants. At that rate, it will take somewhere in the vicinity of 170 months to get back down to 5% unemployment. That’s 14 years. Or, if you’re an economist talking to the AP, “several”.

My method here might be too pessimistic, so, if we use the commonly cited figure of “9 million” jobs lost during the recession (ignoring the new entrants left in limbo and the underemployed), and divide that by half of 250,000, we’re still looking at “recovery” of those lost jobs in just under 70 months. So, five years and nine months. Since Obama became president, the economy added more than 200,000 jobs in a month only four times. And one of those months was helped along by Census hiring. The last time the US economy added more than 200,000 jobs was five months ago. Since that April, the average has been just under 40,000 jobs per month.

Someone please tell me my calculations are wrong. Please.


8 Responses

  1. My calculations are wrong, I forgot to subtract the 2.3 million jobs created so far since 2009. Those 2.3 million jobs still don’t cover the 3.8 million new job entrants over the same period of time.

    However, this still means you can shave 9 months off of my estimated recovery times.

  2. Staggering. Great post. I would like to break this down for Minnesota, any ideas for me on that?

  3. I feel embarassed Craig, I took a quick glance at your blog and it’s obvious you’re well acquainted with BLS databases.

    Looking at the Minnesota numbers, including the recent increase in unemployment, there are about 80,000 people who do not have a job who would normally have a job at the natural unemployment rate.

    The labor force has grown relatively linearly, at about 12,500 per year. Not surprisngly, Minnesota creates jobs at nearly the same rate.

    The only time Minnesota has created jobs at a rate outpacing the growth of the labor force was right after the most recent recession. Which is bad, since I don’t think we’re ever going to experience job growth like that again.

    During that time period, Minnesota added 50,000 jobs in one year. If you remove the population increase (12,500), Minnesota added 37,500 jobs. So it would take over two more years of that incredible job creation to lower the unemployment rate to the historical norm.

    Without such a level of growth, Minnesota may never recover (never mind the fact we’re moving in the wrong direction.) If Minnesota adds jobs at twice the rate of population increase (i.e. twice the rate it has historically added jobs) it would still take almost 7 years to recover to natural employment.

    Sorry, no equations, I’m an arithmetic man.

    • A little common sense goes a long ways.. great arithmatic.

      I was afraid that job recovery was a long ways out for Minnesota… So basically what we need is some revolutionary invention to spur a new era of expansion… (similar to the internal combustion engine or the computer did..)
      We better get started on that… don’t think anyone else is stepping up to the plate right now!

      • You would need an energy boom like we see in NoDak or Minnesota would have to become the most attractive state in the union to some huge corporations. And we’ll never see either of those. (New invention on the other hand…sure, assuming it’s not immediately regulated).

        I’d say the most likely scenario is a slow linear trend, helped along by people leaving the workforce or leaving the state. And this process will take a decade, imho.

  4. […] Marty Andrade wrote an interesting post about unemployment rates, he also broke it down to the Twin Cities level in the comments section. […]

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