State of the Labor Market · State of the Labor Market ... of the Federal Reserve Bank of New York...

State of the Labor Market

Erica L. GroshenVice President and Director of Regional AffairsVice President and Director of Regional Affairs

Heldrich Center for Workforce Development, Rutgers University,

October 30 2009October 30, 2009 The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.

State of the labor marketI. The Great Recession

II. Labor market outlook

III. Are the job losses permanent or temporary?

IV ConclusionsIV. Conclusions

2

I. The Great Recession

21 months into a deep, long recessionStarted slowly in Dec. 2007, gathered steam in Sept. 2008Compared to all post-WWII recessions

Longest (previous max = 16 months)Deepest in job losses, over 5% (previous max = 3%)

Recent revisions only make it look worse

3

Nonfarm payroll job losses and duration exceed post-WWII recessionsIndex I d

1.00

1.01

1.00

1.01Index Index

0.99 0.991990

1973

0 97

0.98

0 97

0.982001

1981

0.96

0.97

0.96

0.97

2007

Official end of recession

0 94

0.95

0 94

0.952007

4

0.940 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

0.94

Months since recession began

Source: Bureau of Labor StatisticsNote: Dashed lines depict expansionary periods.

Unemployment rate approaches post-WWII high and shows biggest jump, even with a more mature workforce

Percent of the labor force seasonally adjustedPercent of the labor force, seasonally adjusted

10

12

10

12

8

10

8

10

66

2

4

2

4

0

2

0

2

67 70 73 76 79 82 85 88 91 94 97 00 03 06 09

5

Source: Bureau of Labor StatisticsNote: Shading shows NBER recessions.

67 70 73 76 79 82 85 88 91 94 97 00 03 06 09

Dramatic increase in long-term unemployment

5000

5500

Thousands of unemployed persons, seasonally adjusted

Dec-07 Sep-09

4000

4500

5000

3000

3500

000

1500

2000

2500

500

1000

1500

6

0< 5 weeks 5-14 weeks 15-26 weeks > 26 weeks

Source: Bureau of Labor Statistics

Rise in unemployment varies by demographic group

25.0

25.9Percent of the labor force unemployed

Dec-07 Sep-09

15.0

20.0 17.8

15.4

12 715.0

10.0

5 0

4.9 4.4 4 2 4.4

9.2

6.47.7

4.6 3 7

9.8 10.3

7.89.0

12.710.8

8.5

4.9

0.0

5.04.4 4.2 4.4 3.7

2.1

• All unemployment rates up substantially•Big gender gap—reflects industrial mix of job losses

7

Big gender gap reflects industrial mix of job losses•Least-educated faring worst—skills less transferable


Small businesses have been more seriously affected

Job losses by establishment size

2001 recession

500-999 Employees

1,000 or More Employees

Current recession (2007Q4-2008Q4)

100-249 Employee Firms


500-999 Employees



2000 1500 1000 500 0 2000 1500 1000 500 0

1-9 Employee Firms


8

-2000 -1500 -1000 -500 0 -2000 -1500 -1000 -500 0

Source: Bureau of Labor Statistics / Business Employment Dynamics

II. Labor market outlookSSources

Blue Chip Economic Indicators Consensus forecastSurvey of Professional Forecasters (FRB Phil)Survey of Professional Forecasters (FRB-Phil)

Labor market will deteriorate furtherCurrent (September) unemployment rate: 9 8%Current (September) unemployment rate: 9.8%Peak unemployment: over 10% (first half of 2010)

9

When will the recession be over?O t t lik l t t d i Q3 2009 l d b i t tOutput recovery likely started in Q3 2009, led by investment

Official end date will be based on output (industrial production, GDP)p , )Initial UI claims declining

10

Unemployment Insurance initial claims have been falling4 week moving average

650

7004-week moving average

550

600

450

500

350

400

300

350

11Source: Department of LaborNote: Shading shows NBER recessions.

2502000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Although job losses have begun to moderate..

7000

7500

8500

9000Private Sector Gross Job Losses (SA, Thous) JOLTS: Layoffs and Discharges: Total Private (SA, Thous)

6000

6500

8000

8500

5500

6000

7500

4500

5000

7000

40006500

992-

Q1

992-

Q3

993-

Q1

993-

Q3

994-

Q1

994-

Q3

995-

Q1

995-

Q3

996-

Q1

996-

Q3

997-

Q1

997-

Q3

998-

Q1

998-

Q3

999-

Q1

999-

Q3

000-

Q1

000-

Q3

001-

Q1

001-

Q3

002-

Q1

002-

Q3

003-

Q1

003-

Q3

004-

Q1

004-

Q3

005-

Q1

005-

Q3

006-

Q1

006-

Q3

007-

Q1

007-

Q3

008-

Q1

008-

Q3

009-

Q1

009-

Q3

12

19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

… hiring is at a historical low

18000

9000

16000

17000

8000

8500

14000

15000

7500

8000

Private Sector Gross Job Gains (SA

12000

13000

7000

Private Sector Gross Job Gains (SA, Thous) JOLTS: Hires: Total Private (SA, Thous)

110006500

992-

Q1

992-

Q3

993-

Q1

993-

Q3

994-

Q1

994-

Q3

995-

Q1

995-

Q3

996-

Q1

996-

Q3

997-

Q1

997-

Q3

998-

Q1

998-

Q3

999-

Q1

999-

Q3

000-

Q1

000-

Q3

001-

Q1

001-

Q3

002-

Q1

002-

Q3

003-

Q1

003-

Q3

004-

Q1

004-

Q3

005-

Q1

005-

Q3

006-

Q1

006-

Q3

007-

Q1

007-

Q3

008-

Q1

008-

Q3

009-

Q1

009-

Q3

13

19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Shape of the recoveryU l t 8% i t 2012Unemployment over 8% into 2012

Jobless recovery” for 1+ years after GDP growth resumesJobs shrink at a decreasing pace through 2009Jobs shrink at a decreasing pace through 2009 Slow growth resumes in mid-2010

Some risks to recoverySome risks to recoveryUnemployment kills nascent housing market recovery

Stimulus withdrawn too quickly (consumption orStimulus withdrawn too quickly (consumption or investment falters further)

Financial market recovery falters (no funding for y ( ginvestment)

Why a slow recovery?

14

High productivity growth, low hours worked, a banking crisis, and structural changes

Nonfarm payroll jobs—quick versus slow (jobless) recoveries

Index I d

1.00

1.01

1.00

1.01Index Index

0.99 0.991990

1973

0 97

0.98

0 97

0.982001

1981

0.96

0.97

0.96

0.97

2007

Official end of recession

0 94

0.95

0 94

0.952007

15

0.940 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

0.94

Months since recession began

Source: Bureau of Labor StatisticsNote: Dashed lines depict expansionary periods.

III. Are the recession’s job losses permanent?

Recessions mix structural and cyclical adjustmentsCyclical: temporary/reversible layoffs from pause in activityStructural: relocate jobs permanently; divorce job destruction from creationStructural: relocate jobs permanently; divorce job destruction from creation

Why it matters: Compared to recalls, replacing structural job lossTakes longer (establish new positions, hire new workers)Takes longer (establish new positions, hire new workers)Riskier, more stress for workers and firms

History: 1990 & 2001 recessions heavily structural (Groshen & Potter 2003)Permanent job losses instead of temporary layoffs More movement of jobs among industriesWhy?y

Stronger incentives for managers: mergers and takeovers, global competition, pay tied to stock performanceFewer HR constraints: fewer unions, deregulation, more temps & outsourcing

16

Mild downturns have limited impact on strong firms

Structural (permanent) versus Cyclical (temporary) job loss

Auto worker Bill

Auto workerNurse

Bill 1

Bill 2 Auto workerBill 2

-Long time to get job

Structural permanent Cyclical temporary

-Shorter time get job

17

-Retrain -No training

Which is it this time?More structural change?

Continuation of new incentives, technological change and HR practices (e.g., few cyclical temporary layoffs)

More cyclical change?Deeper recessions tend to be more cyclical—even strong firms affected

Answer: More of both--but more balanced

18

Temporary layoff usage looks similar to last 2 recessions--largely permanent job losses

Percent of the labor force seasonally adjusted

10

12

10

12Percent of the labor force, seasonally adjusted

8

10

8

10Civilian unemploymentrate

66

2

4

2

4

40%52%

25%Share of unemploymentspike from temp layoffs

0

2

0

2

67 70 73 76 79 82 85 88 91 94 97 00 03 06 09

Temporary layoff rate23%%

11% 9% 13%

19

67 70 73 76 79 82 85 88 91 94 97 00 03 06 09Source: Bureau of Labor Statistics, authors’ calculationsNote: Shading shows NBER recessions.

But… job losses more widespread by industry, consistent with higher temporary contractions

Percent of industries that are growing

6 month diffusion index

20


Job flows among industries during recent recessions

12%

14%Cyclical (temporary) Uncertain

Percent of payroll employment

8%

10%

Structural (permanent)

2.4% 2.9%3.6%

4%

6%

2.9% 2.7% 3.3%1.5% 2.4%0.8%

0.7%

0%

2%

1970 1973 1981 1990 2001 2007 est.

Deeper recessions: large cyclical flows (and quick recoveries)Recent recessions: small cyclical flows (and slow recoveries)

21

y ( )Splitting the difference, 2007 recession likely to have larger, more balanced flows.

Source: Author’s calculations

IV. ConclusionsC l i th G t R iConclusions on the Great Recession

Long and deep; unemployment will be high into 2012Unemployment will have long durationMen and small firms affected disproportionatelyCompared to 1990 and 2001, the Great Recession may have

More structural (permanent) changeo e st uctu a (pe a e t) c a geMuch more cyclical (reversible) job loss

22

Relevant New York Fed resources and activities A ti i H N U l t T kfActive in HopeNow Unemployment Taskforce

With Mortgage servicers, Fannie Mae and Freddie Mac, DOL-ETA, credit counselors, TreasuryOutputs

Cross-listing of resources (websites, call center scripts, borrower and job-seeker events, etc.): workforce system, servicers, counselorsUI duration tool to document payments for mortgage modificationsUI duration tool to document payments for mortgage modificationsForbearance or temporary assistance for unemployed homeowners

Tools for monitoring conditions on www.newyorkfed.orgUS Credit Conditions (state and county maps and data on mortgage, card, auto and student loan delinquencies)NY, NJ and NYC Current Economic IndicatorsPublications (see new Current Issues on NYC) Beige BookEmpire State Manufacturing Survey

23

p g yYield curve recession indicatorOther US and regional charts

Implications for workforce systems W kf t f t li f diWorkforce systems are on front line for speeding recovery

Workers: better job matches, shorter unemployment Society

Higher productivity and employment from fast, good matchesLower risk of feedback from labor markets to housing markets

Long expected duration of unemployment makes training more cost-effectiveImperative to help unemployed workers make sound decisions about mortgagesdecisions about mortgages

Why? Underwater mortgages have high risk of default and home loss “Toughing it out” by drawing down resources is often a bad strategyToughing it out by drawing down resources is often a bad strategy

How to help? Contact credit counselor or lenderConsult resources on www hopenow com

24

Consult resources on www.hopenow.com

REFERENCE SLIDES

25

Male-dominated industries losing the most jobs% Ch i ll l t F ti

1.0

18%

20%% Change in payroll employment Fraction

Payroll jobsLosses in Red / Fraction of jobs

0.8

14%

16%Losses in Red / Gains in Blue(Left Axis)

Fraction of jobs held by men (Right Axis)

0 4

0.6

8%

10%

12%

0.2

0.4

4%

6%

8%

0.00%

2%

Construction Goods Manufacturing Professional & Information Financial Trade & Leisure & Government Educational &

26

Construction Goods Manufacturing Professional & Business Services

Information Financial Activities

Trade & Transportation

Leisure & Hospitality

Government Educational & Health

ServicesIndustry

Source: Bureau of Labor StatisticsNote: Payroll employment change -- Dec. 2007 to Sep. 2009

Fraction of men in December 2007

Unemployment gender gap has reached new heightsP t f th l b f ll dj t d Percent

10

12

10

12Percent of the labor force, seasonally adjusted Percent

8

10

8

10Unemployment Rate: Men (SA, %)

6 6

4 4

Unemployment Rate: Women (SA %)

0

2

0

2Women (SA, %)

27

01972 1979 1986 1993 2000 2007

0


Which jobs are being created and destroyed?At present, best guides are long-term trends identified by research Replacement jobsReplacement jobs

AttritionNormal competitive shrinking/growing

New jobsLower wage industries

Retail services, for exampleBetter wage occupations (across industries)

Creativity, innovativeness, complex thought, educationPersonal contact, ability to communicate

Shrinking jobsRoutine, easily automatedTradable, easily defined and moved

28

Th d Th d

All nonfarm payroll jobs added since 2000 are gone

140,000

150,000

140,000

150,000

Thousands Thousands

120 000

130,000

120 000

130,000

110,000

120,000

110,000

120,000

March 2000

September2009

90,000

100,000

90,000

100,000 2000

70,000

80,000

70,000

80,000

29

60,00060,0001995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Vacancy Rate and Unemployment Rate4.0 4.0

Vacancy Rate Vacancy Rate

3.5 3.5

3.0 3.0

2.5 2.5

2.0 2.0

1 5 1 5

July 2009

30

1.53 4 5 6 7 8 9 10

1.5

Unemployment RateSource: Bureau of Labor Statistics

Hours declines strongly exceed payroll losses12 month percent change

Payroll jobs

31Source: Bureau of Labor StatisticsNote: Shading shows NBER recessions.

4 quarter percentage change in nonfarm business output per hour

Strong productivity growth in 2008-09, no labor hoarding4-quarter percentage change in nonfarm business output per hour

5

6

7

3

4

5

1

2

-2

-1

0

-4

-3

2

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

32

Note: Shading shows NBER recessions. Source: Bureau of Labor Statistics

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Duration of unemployment is higher than historical peaks

Median weeks unemployed seasonally adjusted

17.0

Median weeks unemployed, seasonally adjusted

2009 Apr 12.5

13.0

15.0

pMay 14.9Jun 17.9 Jul 15.7

11.0

Aug 15.4Sep 17.3

7.0

9.0

3 0

5.0

33

3.0

1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007


Layoffs and discharges exceed quits for first time in data

9000

9500

7500

8000

8500

6500

7000JOLTS: Layoffs and Discharges: Total Private (SA, Thous)

JOLTS: Quits: Total Private (SA, Thous)

5500

6000

4500

5000

34Source: Bureau of Labor Statistics / Business Employment Dynamics & JOLTS

Layoffs and discharges now dominate quits

5Monthly separations per hundred employees, seasonally adjusted

4

Quits

2

3 Quits

1

2

0

Layoffs and discharges

Other separations

35Source: Bureau of Labor Statistics JOLTS

2001 2002 2003 2004 2005 2006 2007 2008 2009

55%

JOLTS Layoffs & Discharges as a Percent of Total Separations

50%

55% Separations

45%

40%

35%

30%

36

Source: Bureau of Labor Statistics / JOLTS

Displacement can have a big impact on earnings; many reallocations during 2001 recession raised earnings

20

Percent of re-employed displaced workers

M i h 17%25% of workers report real earnings

15

Mean earnings change: -17% within 10% of previous earnings

10

46% of workers report real earnings losses of 10% or more

29% of workers report real earnings gains of 10% or more

50

-100 -50 0 50 100A i t h i l kl i t f di l t kl i *

37

*Approximate change = change in log of workers’ real earnings*100; extreme values are included in the statistics, but not shown in the histogram.

Source: BLS Displaced Worker Survey (covering 1999-2001), author’s calculations.

Approximate change in real weekly earnings as a percent of pre-displacement weekly earnings*

Hours declines strongly exceed payroll losses12 month percent change

Payroll jobs

38Source: Bureau of Labor StatisticsNote: Shading shows NBER recessions.

Firms often restructure during recessionsHow?

Reorganize productionCull staffCull staffShut inefficient facilities

Why more restructuring during 1990 and 2001 recessions? St i ti fStronger incentives for managers

Threat of mergers and takeoversGlobal competitionPay tied to stock performancePay tied to stock performance

Fewer constraintsLess unionizationDeregulationDeregulationAvailable temps, outsourcing

Effective policy reduced non-fundamental turbulence

39

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