Has Structural Change Contributed to a Jobless Recovery

2. Recent recession ended in November 2001 In July 2003, National Bureau of Economic Research (NBER) set November 2001 as trough Decision complicated by �divergent behavior of output and employment� NBER chose output as the standard

3. Since November 2001, we have been in a jobless (or job-loss) recovery

4. What is a jobless recovery? Term coined during early 1990s Net job growth close to zero Positive output growth, driven by productivity

5.

6. If productivity is growing so fast, why haven�t the jobs come back? The role of structural change Reasons for more structural change Is shipping jobs abroad causing a surge in layoffs?

7. 1. The role of structural change

8. Recessions mix structural and cyclical adjustments Cyclical job losses/gains Losses are temporary, recalls expected Reversed easily Structural job losses/gains Permanent reallocations Workers must switch firms, industries, sectors, skills, or locations Employers must set up new positions and find new workers

9. Two approaches to measuring structural vs. cyclical changes Temporary versus permanent layoffs Relocation of jobs between industries

10.

11.

12. How job flows classify industry adjustments during a recession and its recovery

13. Many industries had a cyclical experience during the early 1980s

14. Current pattern: most industries are in structural quadrants

15.

16.

17. 2. Reasons for more structural change Investment overhangs Effective counter-cyclical policy Lean staffing

18. Investment overhangs:9 of 19 hot industries now in decline

19. Effective counter-cyclical policy Tools Aggressive monetary easing (early part) Expansionary fiscal policy (later part) Effect Sustains demand in normally cyclical industries Structural adjustments remain Evidence: Unusual strength of consumer durables expenditures and housing

20. Lean staffing: employers cut costs permanently Recession used as opportunity or mandate to permanently restructure, not just �weathered� Reorganize production, outsource Cull staff, close inefficient facilities Why? More pressure on managers Market for corporate control Global competition Pay for stock performance Or, fewer constraints Less unionization More temps and outsourcing options

21. 3. Is shipping jobs abroad causing a surge in layoffs?

26. How trade affects jobs No long-run effect on number of jobs Large impact on mix and pay of jobs Displacement costs to workers Median time jobless:  13 weeks (mfg.), 11 weeks (services) Mean earnings losses:  -11% (mfg.), �2% (services)

27. Have trade flows surged since 2000?

28. Have trade flows surged since 2000?

29. No recent break in trends for net exports

30. Job destruction rates are no longer elevated

31. Falling job creation underlies the jobless recovery

32. Falling job creation underlies the jobless recovery

33. What conditions suppress job creation? Uncertainty Widespread structural change (which industries will grow?) Geopolitical situation (energy prices, terrorism, etc..) Crisis in corporate governance and accounting standards Getting lean staffing right Less funding for risky ventures Stock market and NASDAQ declines IPO, venture capital funding droughts Large high-yield bond spreads

34. Summary Why is the recovery jobless? Predominantly permanent, structural job losses Slow job creation Reasons for more structural change? Investment overhangs Counter-cyclical policy Lean staffing

35. Prospects Job growth will require Less uncertainty, more confidence Improved financing for risky ventures Particular industries/occupations will face continuing challenges Robust job growth unlikely immediately�no boost from recalls Ultimately, restructuring could bring on a long, robust expansion, as did the previous jobless recovery

36. End of showNote:Copies of the August 2003 Current Issues in Economics and Finance can be downloaded from www.newyorkfed.org

37. Household vs. payroll job growth discrepancy Household reports more growth since 2002, gap is larger than usual Suspected reasons Self-employment (not in payroll) is growing Household jobs inflated by net immigration assumptions that are probably too high Not missing a spate of recent employment growth in small or infant firms Rebenchmarking adjustments for 2004 will be small Constant pace of divergence since 2002

39.

40. Policy options beyond tax cuts Targeted temporary job creation credits Better education to improve workers� ability to adjust to change Ensure innovative capacity Public or private structural change wage �insurance� for workers (through UI or not) Restore confidence in financial markets and corporate governance

41. Half the decline due to teenagers staying in school longer

42. Self-employment has surged during the recovery

43. Discouraged workers have not increased as a share of those out of the labor force

44. Why are temporary layoffs disappearing? UI rule changes Manufacturing jobs declining Unionization declining Rise of temporary help services Opportunistic firing/closings More structural changes during recessions

45. Mid-70s

46. Early 1990s

47. Current pattern: most industries are in structural quadrants

48.