U.S. Heads For Third Straight Jobless Recovery

The U.S. economy may have started growing again over the summer, but ordinary Americans may not notice that much. If the economy is in fact growing, it's not yet creating jobs.

Economists worry we may be in for a jobless recovery, when a recession technically ends but the jobs take a long time to come back.

You can see hints of a jobless recovery in the rising unemployment rate — it hit 9.8 percent in September — or you can visit a place like the Northwest Career Center run by the city of Baltimore. Everyone there is looking for a job. Truck drivers look for leads alongside men and women who used to work in warehouses or food service.

Kia Banks lost a position in health care. "I've been looking for a job for an entire year — an entire year," she says. Banks keeps a bag filled with copies of her resume, with cover letters, a list of contacts and references and official papers that she'd need to start a new gig. "Everything they could ask for, I'm ready," she says.

Banks says she's never had this much trouble finding a job. She says it's been a weird experience, as though something has changed.

The idea of a jobless recovery seemed strange to economists at first.

After most every modern recession, once the economy began expanding and gross domestic product rose again, employers began adding jobs a few months later.

Then came the recession of 1990-91. As that downturn ended, says economist Erica Groshen, statistics from the labor market didn't make sense. The economy was growing, but the jobs weren't coming back. "The real question was, 'Well, is some of the data wrong in some way?' " remembers Groshen, who works at the Federal Reserve Bank of New York.

Sure enough, the data back then were correct. Unemployment continued to rise for another year after the economy stopped shrinking. The same pattern appeared after the recession of 2001.

Groshen asked the library to research the phenomenon. That led to an unsettling find: The first documented use of "jobless recovery" appears in The New York Times in the mid-1930s, in the Great Depression.

A Shifting Landscape

Faced with recessions in decades past, Groshen says, employers typically waited for better times and then called people back to work. In the two recessions after 1990, the labor market seems to have undergone a structural shift.

"In the more recent recessions, it seems that we have more employers using this as an opportunity to change what they are doing in a more basic way," she says. "They are closing inefficient facilities. They are culling their workforce. They are changing their production process."

That meant businesses became more efficient, which explained the economic growth. It also meant the workers had to find different jobs, a process that takes time. Those two factors combine for a jobless recovery.

This time around, says Harvard economist Lawrence Katz, the U.S. may be on track for its third jobless recovery in a row. One reason is that the recession was so severe that it killed a lot of businesses outright.

"If I just look out the window of my office, I see all sorts of empty storefronts, of stores that have been around 20 to 25 years, and restaurants that have survived previous recessions," Katz says. "Those stores are completely gone now. Something eventually will move into those buildings. But it will take a very solid recovery before people want to completely start a new business."

The credit crisis isn't helping. Anyone wanting to open a new restaurant where an old one failed probably will need a loan — and those can be hard to get.

Heidi Shierholz, an economist at the Economic Policy Institute, says she has been keeping two lists — one for good news, one for bad. The bad list is long. The fall in home values makes people feel less wealthy, so they stop spending. States are facing huge holes in their budgets. The labor market is showing few signs of expanding.

Her list of positives has only one thing on it. "We had a massive recession. It was a very deep, steep loss of jobs. So there is the potential for a very quick bounceback," Shierholz says. "The intuition there is you have a bunch of factories that are just laying idle. So it doesn't take much investment to just get them back online."

Even if that happens, the country has a lot of ground to make up. The unemployment rate has doubled from its level before the recession. There are now more than six unemployed workers for every available job. Meanwhile, the population keeps growing. That means even more people looking for work, every month.

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