Thursday, March 04, 2010

Are we in a mini-depression?

With all of the talk about "The Great Recession", "worst since the Great Depression", the "recovery" (still "nascent"?), and the ongoing "soft labor market" (still "improving"?), where are we really? I would say two things: 1) we are in the early stages of a slow recovery, and 2) on the unemployment front we are in what I would now call a mini-depression. Put simply, we have 8 million people who were gainfully employed at the low of unemployment in March 2007 but who are now unemployed and the majority of whom will not find work in the near future. Even if we somehow manage to create 100,000 new jobs every month (1.2 million a year), it would take almost 7 years to put them all back to work. No matter how you slice it, that is far worse than any mere recession. Granted, it pales in comparision to a full-blown depression, but it is bad enough to qualify as what I will now term as a mini-depression, at least in terms of unemployment.

Some data (my calculations from monthly BLS data):

  • Low-point of unemployment in the dot-com boom in April 2000: 5.481 million
  • Peak unemployment while "recovering" from the dot-com bust in June 2003: 9.266 million - loss of 3.8 million jobs
  • Low-point of unemployment during the housing boom in March 2007: 6.725 million - gain of 2.5 million jobs
  • Peak unemployment after the housing bust and credit crisis in October 2009: 15.612 million - loss of 8.9 million jobs from the March 2007 low-point
  • Current unemployment as of January 2010: 14.837 million - gain of 775,000 jobs since October

A loss of 8.9 million jobs. That is staggering.

The numbers are even worse if you include full-time workers who can now only find part-time work, but that only further affirms my conclusion that we are in a mini-depression.

How do we get out? Government stimulus? Some. But ultimately we simply have to wait for business to recover and new businesses to be created that create jobs for those workers. Government can also help by reducing government obstacles to starting new businesses and creating new jobs, but ultimately it is the creation of new jobs by the private sector that will determine when the mini-depression displaced workers are put back to work. Also, as tax revenues recover at the state and local level, state and local employment will also begin to recover, but that will only happen as businesses first recover.

How long will this last? I would say another three to ten years depending on so many variable factors. Best case, three years from now the economy is booming again and fewer than three million of the mini-depression displaced workers are still unemployed. Worst case, it will be another ten years, with a double-dip recession in there somewhere. Nominally, my hunch is that that five to seven years from now the bulk of those mini-depression displaced workers will be back at work and productive and paying taxes to enable state and local governments to recover.

But even five years is a dog's age in economics and politics. There will be plenty of calls for additional stimulus, job training, social safety net improvement, political leadership changes, etc. that will keep the issue of these millions of workers who will remain unemployed for much of the next few years.

Sure, GDP is already "rebounding" and employment will rise nicely as the economy continues to recover, but a lot of the newly-employed will be kids just out of school, immigrants, and older workers reentering the workforce due to investment deterioration, leaving a lot of those eight million adrift without hope in sight. In fact, at various points we are likely to see an increase in unemployment as former workers who had dropped out of the unemployment counts since they gave up looking for nonexistent jobs over the last two years reenter the workforce as more jobs start opening up in the coming years.

-- Jack Krupansky


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