How Long Is America's Road Back to Full Employment?

How Long Is Amercia's Road Back to Full Employment?As the U.S. continues its ongoing effort to restore the job market to health, investors might want to view the process the way they would the pursuit of a four-year college degree: Whatever efforts are put in now, the real payoff will take awhile to arrive.

All investors and job-seekers are aware of the Great Recession's impact on the job market from 2007 to 2009. About 8 million jobs were lost in the nation's worst economic downturn since the 1930s.

Almost every sector experienced job cuts, with the construction (2 million jobs lost), financial services (800,000 jobs lost) and auto sectors hit especially hard, according to statistics compiled by the Bureau of Labor Statistics. In the process, the nation's unemployment rate soared to 10.1% in November 2009, before declining slightly in 2010, to 9.4% as of December 2010.

Add in the approximately 7 million adults who were already looking for full-time work before the recession hit in December 2007, and it doesn't take a mathematician to see that the nation's full-time job deficit is huge: about 15 million jobs.

And the total is much higher if one considers discouraged unemployed workers not currently seeking work, who aren't counted in the official unemployment statistic, or part-time workers who want full-time jobs.

How Long Until Full Employment?

That means the 15 million-job deficit is conservative, though it may not be conservative enough, given the recent shift in public policy targets. In a speech in Denver on Saturday, Federal Reserve Vice Chairman Janet Yellen said a Federal Reserve Bank of Philadelphia survey of forecasters put the median "new normal" full employment jobless rate at about 5.75%. That's substantially higher than the 3.5% to 5% target range bandied about by economists a decade ago.

If one accepts a jobless rate slightly below 6% as the new standrd, that means the U.S. economy would need to create about 9.4 million jobs to reach full employment, according to BLS data, The New York Times reported.

So: With 9.4 million jobs as the goal, what does the recovery timetable look like?

First, a little background: The U.S. economy must create about 125,000 new jobs per month just to keep up with population growth and prevent the unemployment rate from rising. That's a constant in the full-employment equation. The biggest variable is GDP growth, which roughly parallels job growth. For example:
  • If U.S. GDP growth is strong, and the economy creates 300,000 jobs per month, the nation will reach full employment in about 3½ years, or in mid-2014.
  • If U.S. GDP growth is moderate, and the economy creates 250,000 jobs per month -- roughly the monthly job growth during the Roaring '90s -- full employment won't arrive until early 2016.
  • If U.S. GDP growth is weak and leads to a subpar 200,000 new jobs per month, full employment won't arrive until 2020 -- a staggering nine years from today.
It's a sobering picture of the task ahead, and no amount of sugar-coating can make that objective economic reality more palatable: The job deficit is huge, and it will take a long time to eliminate.

Why There's Reason to Hope


This isn't to suggest pessimism about the U.S. economy, let alone agreement with the even more dire "doom-and-gloom" forecasts. Rather, the view from here argues that a hopeful realism represents the prudent stance, for the following reasons.

First, there's the adaptability of the U.S. economy. University of Connecticut political science professor Howard Reiter, a leading scholar on corporate capitalism -- our economic system -- says one enduring hallmark of the American economy is its elasticity: It's more flexible than many European systems. The freedoms we all enjoy (and too often take for granted) are the foundation for a system that can reform itself and implement innovation. It's a major reason that corporate capitalism still operates today.

Second, the role of technology, which benefits from Amercia's flexible, innovation-friendly economic system, could surprise everyone in the decade ahead.

Critics will quickly point out technology's job-eliminating dimension -- receptionists displaced by automated voice-mail or assembly-line workers displaced by a machine come -- but I subscribe to the prediction that after a period of U.S. economic restructuring, technology will create new job-growth fields as Americans retrain and as U.S. companies' sales of tech-intensive products and services continue to increase.

Third, U.S. GDP could grow significantly faster than many are predicting -- a point that speaks to the margin-of-error issue in five-year or even three-year forecasts.

Extravagant Speculation

If one had to make a U.S. GDP growth forecast for 2011 and 2012, a safe prediction would be moderate 2.5% to 3.5% growth range, with job growth sufficient to lower unemployment to about 8%, but not much lower.

But who's to say the U.S. economy won't grow at better than 5% over the next two years? Is 6% growth out of the question? With that level of growth, could the economy sustainably create more than 300,000 jobs per month -- for years -- as companies increase hiring to meet both rising exports and domestic demand? And would the Federal Reserve, if it saw a job boom forming, with incomes rising at more than 4% per year, tolerate a higher inflation rate, at least for few years, to accommodate that boom?

Let's even speculate more extravagantly: What if a new, cheaper, abundant, domestic energy form were discovered or developed that substantially lowered transportation costs?

The point is, no one can predict with any level of certainty about any of those possibilities, either in the optimistic or negative views. The margin-of-error factor in long-term forecasts is simply too wide. Things could turn out as forecast -- but they could also turn out better.

To be sure, realism about the job deficit is prudent because it's huge. But perhaps the worst is behind us -- economically, if not politically -- and aided by the U.S. economic system's ability to adapt and renew itself, both the economy and job growth will register better than expected performances in 2011 and 2012.

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172 Comments

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granaryst

In reference to wfreeberg below: If you lump all Mexicans earnings together, yes, the average income of Mexicans is approx. 1/4 of ours. But, the vast majority of the earnings go to the ultra rich ruling class of less than 1%. So as Surfr45 stated, the average Mexican makes less than 6 dollars a day is true even though a few like Carlos Slim make millions a day. If you have 1 person making $1,000,000 a day and 999 making $1 a day, your average person makes what? That is the point and that is what our evil, ultra rich are trying to do to us by supporting Demon politician puppets who spend us into the poor house, destroying our middle class while they sit on their vaults of precious metals, laughing at how gullible our socialistic public educational system has duped our children...

January 13 2011 at 6:30 AM Report abuse +2 rate up rate down Reply
Robert & Lisa

Evil, ultra rich George Soros backs Obama and the corrupt Demoncrats. Having invested millions in getting them elected, he's now getting payback by having them spend us into the poor house, while George is laughing all the way to his vault, filled with gold.

January 13 2011 at 5:52 AM Report abuse +5 rate up rate down Reply
2 replies to Robert & Lisa's comment
wfreeberg

There are a lot of folks that are better off today than they were 2 years ago. Those that didn't panic, they had a plan, they were diversified, etc. They had an education or marketable skill mix, were not in debt over their head, did not buy a home on zero down, interest only, etc. Let's move forward and get over the Doom & Gloom and most important BLAME.

January 13 2011 at 6:24 AM Report abuse -3 rate up rate down Reply
granaryst

Correction. There are a few folks better off in the U.S. today than 2 years ago. The ones who listened to Glenn Beck...

January 13 2011 at 6:34 AM Report abuse +3 rate up rate down Reply
llwlknsn

The assumption of elasticity in our economic system is BS. The corporate elite are actively destroying industries in this country in order to export them to other countries under the guise of moving closer to the 'customer'. We will be hearing about the third jobless recovery if the economy starts gearing up again. Meanwhile more jobs are being outsourced and illegal labor is being insourced in order to gut the middle class. Economists are nothing but a pack of hired liars employed to keep people from questioning too closely the new status quo. Those without jobs are not buying it any more and anyone who has a job needs to be uncomfortable with purpose. No job in this country is stable and that is EXACTLY the way the multinationals want it.

January 13 2011 at 12:20 AM Report abuse +2 rate up rate down Reply
3 replies to llwlknsn's comment
Steven

Probably when we stop paying people to not work.

January 12 2011 at 8:35 PM Report abuse -1 rate up rate down Reply
1 reply to Steven's comment
llwlknsn

Where are the jobs. Do tell us in your infinite wisdom where the jobs those who are being 'paid' not to work are. Grow up.

January 13 2011 at 12:21 AM Report abuse rate up rate down Reply
gmini10

Lower wage's = lower price's

January 12 2011 at 6:05 PM Report abuse -2 rate up rate down Reply
captaincvfd

So Maybe if we Started with getting the 20 million Illegals out of the work force we would have more jobs then we could start cutting the welfare ranks.

January 12 2011 at 5:14 PM Report abuse +6 rate up rate down Reply
davefromfwb1

Saying "get back to full employment" is like saying I'm going to recoup what I lost in GM stock. It's just not going to happen. People have given up hope, the money transfer from poor to rich has been completed. The only people who have money are the corporations and they've left town to hire foreign labor at 1.50 cent per hour. If you think "the market" will come back then keep believing what these idiots on the stupid articles keep trying to feed you. Better learn to provide a service be it automobile mechanic, laywer, doctor, lawn service, business owner of some kind......otherwise you'll be wasting your time and money going to college to learn something nobody needs.

January 12 2011 at 5:13 PM Report abuse +3 rate up rate down Reply
cozypaws

I have been saying this for the past 3 yers.The USA will never be the same

January 12 2011 at 4:58 PM Report abuse +2 rate up rate down Reply
1 reply to cozypaws's comment
gmini10

The same as what?

January 12 2011 at 6:06 PM Report abuse rate up rate down Reply
Robert & Lisa

Fire evil, ultra rich man George Soros's puppets in 2012

January 12 2011 at 4:49 PM Report abuse +2 rate up rate down Reply
Robert & Lisa

We need to limit our government which is getting way to bloated and corrupt.

January 12 2011 at 4:43 PM Report abuse +4 rate up rate down Reply