Economy and Jobs Watch: Employment Outlook

The nation’s job market continues to struggle. In August, even though the unemployment rate improved slightly – falling from 6.2 to 6.1 percent – payroll employment fell by 93,000 jobs.

On Friday, the Economic Policy Institute launched, a website devoted to tracking the current administration’s record on creating jobs.

The administration has claimed that the tax package would create 510,000 additional jobs in 2003 and 891,000 additional jobs in 2004. Adding this to the amount of job creation that would have taken place anyway, this would mean a total of 5.5 million new jobs – or 344,000 per month.

The new website will track the employment record and will compare the outcomes with the administration’s prediction. For August, the 93,000 lost jobs puts the cumulative shortfall at -437,000.

Since the recession began in March 2001, there has been a decline of 3.3 million private sector jobs. This 2.9% drop in employment is the largest loss of jobs at this point in the recession/recovery cycle since the Great Depression.

One reason for the sluggishness of the economy may be an apparent shift in companies’ rehiring practices. During past recessions (prior to 1991), there was a larger amount of temporary lay-offs – workers could often expect to be rehired by their employer after the recession ended. A new study published by Erica L. Groshen and Simon Potter of the Federal Reserve Bank of New York examined industry level trends and finds that layoffs are becoming increasingly permanent. The findings suggest that structural shifting of labor between industries during recessions has become more important – and that this would help explain the sluggishness in employment after the 2001 recession.

The report concluded that “[t]he period after the 2001 recession will be remembered as the second jobless recovery. . . . Industries that lost jobs during the recession have continued to shrink during the recovery, and permanent job losses have eclipsed temporary layoffs.”

If true, this kind of structural change in the economy would place much more reliance on new job creation. If workers can no longer expect to be reemployed in their old job or industry, much more emphasis needs to be placed on retraining, supporting unemployed workers, and keeping job growth as strong as possible. The administration's single-minded focus on certain kinds of tax cuts has caused a significant failure to respond to the new realities of the job market.

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