JOBLESS OR JOB LOSS RECOVERY?

BankRI, Lardaro on the Economy Series
October 2003

October marks the 22nd month of Rhode Island’s current recovery. Like the nation, economic uncertainty here abounds as this “jobless recovery” progresses. The economic world has indeed changed, as recoveries seem to diverge more and more from historical patterns. The term “jobless recovery” is no longer an oxymoron, but, apparently, the norm.

In the “good old days,” jobs returned sooner than in this or the previous recovery. Prior to the 1990s, when Rhode Island was a manufacturing-based economy, recoveries were never called “jobless.” In the fourth quarter of 1987, Rhode Island became a service and information based economy (for a detailed reference, click here). Add to this global competition, low inflation, which has taken away most of the pricing power firms once had, and productivity, much of it labor saving, and we find ourselves in the midst of a frustrating environment, where recovery seems almost indistinguishable from recession.

What has really changed is the frequency of job loss. During the manufacturing era, job loss occurred primarily during recessions. Once a recession ended, persons returned to their prior jobs. In this post-manufacturing era, firms increase profit by cutting costs proactively during all stages of the business cycle. So, layoffs occur during both recoveries and recessions. Even worse, many of the layoffs result from the permanent elimination of jobs. So, for many of today’s unemployed, there is no job to return to.

This is reflected in monthly employment data. Contrary to public perception, each month’s employment figure is not the number of jobs created or lost that month. It is the net change in total employment – the difference between job gains and jobs lost during that month. In this post-manufacturing era, job loss continually negates some or all of the jobs created. This can be seen vividly in the graph of job gain and job loss during the present recovery. For Rhode Island, job gain has never fallen below 6,000 (year-over-year) throughout this recovery. Why has this been viewed as a jobless recovery? Look at the jobs lost. In the early and middle months of this recovery, job loss matched job gains. Average monthly job gain is only 1,000 more than job loss (see Table).

Since April the “gap” has widened favorably for us. Hopefully things will continue to improve.

by Leonard Lardaro