One does not like to rain on the parade of headlines that the unemployment rate has fallen 0.4 percentage points to 8.6 percent. It is better news than bad that 120,000 jobs were created in November, but we need a much bigger umbrella to feel comfortable; just to march in step with population growth we need a minimum of 150,000 a month.
For the American worker, these are by far the worst of times since the Great Depression. The unemployment rate, the highest and most sustained in seven decades, is even grimmer than suggested by the dismal overall statistics. It is calculated from a base of only 60,000 households. Experts have concluded that the combined unemployment and underemployment rate is slightly above a staggering 20 percent of the labor force. That's not far from the Depression's worst year of 24.9 percent and on a par with 1935, when President Franklin Roosevelt's measures had begun to have some effect.
Today fully 40 percent of the jobless have been out of work for six months or more, compared with 10 percent in 2007. The average period of unemployment now exceeds 26 weeks, substantially above the previous peak of 21.2 weeks in July 1983. This is a critical development. The longer that people of any age are out of work, the less likely they are to find another job; their skills and their contacts, particularly in dynamic industries like technology and marketing, quickly atrophy. The less skilled are hit hardest, as the impact of new technologies and globalization has left many people unable to respond to this dramatic and fundamental change in the labor market.
But wait. The real numbers are even more awful than the official figures. Many people are simply not counted as unemployed because they have stopped looking. Had it not been for the—wholly justified—extension of unemployment benefits to 99 weeks from the normal 26 weeks, many more would have stopped looking; they need to keep at it to qualify for those extended benefits. The catastrophe for the individuals and the country is that whereas 96 percent of American men between the ages of 25 and 54 worked during the mid-1950s, now only around 80 percent do. One fifth of all men in their prime working age do not have jobs. We have a generation of the economic walking dead.
The recovery, if it can be called that name, is surprisingly weak. For hiring to occur at a recovery-level pace, we would need at least a half million more hires per month than we are now seeing. Two years after the trough of the recession, we have recovered less than 20 percent of the jobs lost; typically, by now total non-farm payrolls would have recovered over 200 percent of the jobs lost. Instead of all-time high employment at this stage of the cycle, payrolls today are actually more than 7 million shy of where they were when the Great Recession began.
Most of the activity in the labor market today reflects "churn," the continual process of replacing workers, which is not the same as a net expansion. High labor churn generally means that workers are moving to better jobs in growing sectors that pay higher wages and away from the declining sectors that pay lower wages. That sounds good, but here is another dismaying trend: In previous recessions, something like 1 million more Americans moved on to better jobs. In a healthy labor market, such as 2006 or 2007, American firms were hiring about 5.5 million workers per month. That number is now down to around 4 million, substantially where it has been for the last two years. In effect, almost 35 million Americans are trapped in jobs they would have left in better times.
But what of the recent headlines suggesting an improvement in job growth? Again, there is no silver lining. The apparent improvements result primarily from the decline in the number of layoffs rather than increased hiring. Layoffs have gone from 2.5 million per month in February 2009 to 1.5 million per month now. When an economy hits bottom, it has already shed much of its labor, so layoffs slow. But this does not mean that the labor market is recovering. For that we would need more hiring.