Transcript Has Structural Change Contributed to a Jobless Recovery? Erica L. Groshen Simon Potter with the assistance of Rebecca Sela Federal Reserve Bank of New York.

Has Structural Change
Contributed to a Jobless
Recovery?
Erica L. Groshen
Simon Potter
with the assistance of Rebecca Sela
Federal Reserve Bank of New York
The recent recession ended in
November 2001
• In July 2003, the National Bureau of
Economic Research (NBER) set November
2001 as the trough
• Decision complicated by unusual “divergent
behavior of output and employment”
• NBER chose output as the appropriate
standard
Since November 2001, we have been in
a jobless (or job-loss) recovery
Percent change from trough
Percent change from trough
8
8
7
7
6
6
Average of previous cycles
5
5
4
4
3
3
2
2
Early 1990s cycle
1
1
0
0
-1
-1
Current cycle
-2
-2
-12
-9
-6
-3
Trough
3
6
9
12
Months after trough
Source: Bureau of Labor Statistics, authors’ calculations
Note: Shading indicates length of 2001 recession.
15
18
21
24
27
30
What is a jobless recovery?
• Term used to describe aftermath of the early
1990s recession
• Net job growth close to zero
• Positive output growth, driven by
productivity
AGENDA
If productivity is growing fast,
why haven’t jobs come back?
1. The role of structural change
2. Reasons for more structural change
3. Weak job creation or widespread job
destruction?
4. Focus on manufacturing
1. The role of structural change
Recessions mix structural and
cyclical adjustments
• Cyclical job losses (temporary)
– Recalls expected
– Can be reversed easily
• Structural job losses (permanent)
– Require workers to switch firms, industries,
sectors, skills, or locations
– Adding jobs requires employers to set up new
positions and find new workers
Two approaches to measuring
structural vs. cyclical changes
• Temporary versus permanent layoffs
• Relocation of jobs between industries
Temporary layoffs underlay previous peaks and
rapid recoveries in the unemployment rate
Percent of the workforce, seasonally adjusted
Percent of the workforce
12
12
10
10
8
Civilian
unemployment rate
8
6
6
4
4
Unemployment rate
without temporary layoffs
2
2
Temporary layoff rate
0
Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan67
69
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
Source: Bureau of Labor Statistics, authors’ calculations
Note: Shading represents NBER recessions.
0
In the 1990s and 2001 recessions, temporary
layoffs contributed little to rise in joblessness
Percent of the workforce, seasonally adjusted
Percent of the workforce
12
12
10
10
Civilian
unemployment rate
8
8
6
6
4
4
38%
52%
2
30%
11%
25%
Unemployment rate
without temporary layoffs
6%
Temporary layoff rate
0
Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan67
69
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
Source: Bureau of Labor Statistics, authors’ calculations
Note: Shading represents NBER recessions.
2
0
Percent Job Growth in Recovery
How job flows classify industry adjustments
during a recession and its recovery
60
Procyclical flows
Structural gains
40
20
0
-60
-40
-20
0
20
40
60
-20
-40
Structural losses
-60
Counter-cyclical flows
Percent Job Growth in Recession
Many industries had a cyclical
experience during the early 1980s
Percent Job Growth in Recovery
Procyclical flows
Structural gains
General Building
Contractors
20
Securities and
Commodities Brokers
15
10
Primary Metal
Industries
5
0
-60
-40
-20
0
20
40
60
-5
Railroad
Transportation
Structural losses
-10
-15
Percent Job Growth in Recession
Oil and Gas
Extraction
Counter-cyclical flows
Current pattern: most industries in structural quadrants
(NAICS basis, through January 2004)
Structural
gains
Food services & drinking places
15
Ambulatory health care services
Procyclical flows
Specialty trade contractors
Educational services
Scenic & sightseeing transportation
Real estate
Administrative & support
services
-15
-10
Accommodations
Hospitals
Social assistance
State govt.
educational services
Membership
associations
5
Warehousing & storage
Percent change in payroll jobs
Couriers &
during the recession (Mar 01-Nov 01)
messengers
-20
10
0
-5
0
-5
Air transportation
5
10
Local govt.educational services
Motion picture & sound recording
Funds &
Trusts
Machinery
Computer & electronics mfg.
-10
Publishing, ex internet
Other
Leisure & Hospitality
Professional & Business Services
FIRE
Construction
-15
Wholesale Trade
Retail
Internet publishing
& broadcasting
Electrical eqpt. Telecommunications
-20
& appliances mfg.
Apparel
Manufacturing
Educational & Health Services
Textile mills
Structural losses
Transportation & Utilities
Information
-25
Percent change in payroll jobs
during recovery (Nov 01-Jan 04)
During earlier periods, structural and cyclical
adjustments accounted for equal parts
Early 1980s
Mid-1970s
51%
49%
Cyclical
Structural
Early 1990s
57% 43%
Cyclical
Structural
Source: Bureau of Labor Statistics, authors’ calculations
51%
49%
Cyclical
Structural
Structural adjustments now dominate
Early 1980s
Mid-1970s
51%
49%
Cyclical
Structural
51%
Early 1990s
49%
Cyclical
Structural
Current
21%
57% 43%
Cyclical
Structural
Source: Bureau of Labor Statistics, authors’ calculations
79%
Cyclical
Structural
2. Reasons for more structural
change
• Investment overhangs
• Effective counter-cyclical policy
• Lean staffing
Investment overhangs:
9 of 19 hot industries now “declining”
Sightseeing Transportation
Educational services
10
Social assistance
5
Administrative & Support
0
-20
-15
-10
ISP’s, Search Portals
& Data Processing
-5
0
-5
-10
Internet Publishing
& Broadcasting
Telecommunications
-15
-20
-25
5
10
Motion Pictures, Museums & Zoos
Funds & Trusts
Effective counter-cyclical policy
• Tools: Monetary easing and/or
expansionary fiscal policy
• Effect:
– Buffers normally cyclical industries
– Structural adjustments remain
• Evidence: Unusual strength of consumer
durables expenditures and housing
Lean staffing: employers cut
costs permanently
• Recession is an opportunity to permanently
restructure, not an event to be “weathered”
– Reorganize production
– Cull staff
– Close inefficient facilities
• Why? More incentives or pressure for managers
– Corporate mergers/takeovers
– Global competition
– Pay tied to stock performance
• Or, fewer constraints
– Less unionization
– Availability of temps, outsourcing, part-time labor
4. Weak job creation or
widespread job destruction?
Job destruction rates are no longer
elevated; down to early-1990s levels
Percent of employment, quarterly rate, seasonally adjusted
9
9
8.5
8.5
8
8
7.5
7.5
Job losses (all employers)
7
7
6.5
6.5
1992
1993
1994
1995
1996
1997
Source: Bureau of Labor Statistics
Note: Shading represents NBER recession.
1998
1999
2000
2001
2002
2003
Weak job creation (falling since 2000)
underlies the jobless recovery
Percent of employment, quarterly rate, seasonally adjusted
9
9
Job gains (all employers)
8.5
8.5
8
8
7.5
7.5
Job losses (all employers)
7
7
6.5
6.5
1992
1993
1994
1995
1996
1997
Source: Bureau of Labor Statistics
Note: Shading represents NBER recession.
1998
1999
2000
2001
2002
2003
What conditions suppress job
creation?
• Uncertainty
– Widespread structural change (which industries will
grow?)
– Geopolitical situation (energy prices, terrorism, etc...)
– Crisis in corporate governance and accounting standards
• Less funding for risky ventures -- no longer an issue
– Stock market, IPO, venture capital, bond spreads
• Impact: Long lags between job cuts and new hires
5. Focus on manufacturing
• Temporary layoffs
– cyclical pattern much muted
• Structural changes during recessions
– strong shift toward structural losses
Temporary layoffs now a much smaller factor
in manufacturing recessions
Temporary layoffs as a % of manufacturing labor force
8.0%
7.0%
6.0%
5.0%
Durable
Manufacturing
4.0%
3.0%
2.0%
1.0%
0.0%
Non-durable
manufacturing
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Source: Bureau of Labor Statistics
Mid-1970s recession: a cyclical pattern in
manufacturing
15
Leather
Lumber & Wood
12
Job Growth in Recovery
Apparel
Transportation Equipment
Furniture
& Fixtures
9
Petroleum
& Coal
Instruments
3
Electronics &
Electric Equipment
-25
-20
6
Food
-15
Fabricated
-10
Metals
0
-5
0
-3
Durable Goods
Nondurable Goods
Primary Metals
Job Growth in Recession
Source: Bureau of Labor Statistics, authors’ calculations, SIC basis
Industrial
Machinery
-6
1980’s recession in manufacturing, also cyclical
20
Lumber and wood
Job Growth in Recovery
15
Transportation
Equipment
Primary Metals
Electronics &
Electric Equipment
10
5
Printing & Publishing
0
-40
-30
Durable Goods
Nondurable Goods
-20
Industrial
Machinery
-10
0
10
20
30
Leather
-5
Tobacco
-10
Job Growth in Recession
Source: Bureau of Labor Statistics, authors’ calculations, SIC basis
Petroleum
& Coal
1990 recession in manufacturing: mostly structural,
but industries that lost most during the recession did
best during the recovery
Job Growth in Recovery
Rubber &
Plastics
Lumber and wood
2
Petroleum
& Coal
Furniture &
Fixtures
0
-10
-8
-6
Transportation
Equipment
-4
-2
Fabricated Metals
-2
Primary
Metals
-4
Leather
Durable Goods
Nondurable Goods
0
Electronics &
Electric Equipment
-6
Job Growth in Recession
Source: Bureau of Labor Statistics, authors’ calculations, SIC basis
Food
2
2001 recession in manufacturing was purely
structural, however you look at it
Durable Goods
Nondurable Goods
Job Growth in Recovery
-16
-12
(Through November 2002)
Fabricated Metals
-12
-10
-8
Primary Metals
-14
-6
-4
Printing
0
Transportation
Equipment
Electrical Equipment
& Appliances
Computer and
electronic products
Apparel
-2
-4
Textile Mills
Leather
Food
0
NAICS
-8
-12
8
SIC
Tobacco
4
Furniture &
Fixtures
Fabricated Metals
Leather
-10
-8
-6
0
-4
Durable Goods
Nondurable Goods
-2
0
-4
Transportation
Equipment
-8
Job Growth in Recession
-12
Electronics &
Electric Equipment
Food
Chemicals
Industrial Machinery
Primary
Metals
2
2
Petroleum
& Coal
2001 recession in manufacturing remains
structural
(NAICS Basis, through March 2004)
Durable Goods
Nondurable Goods
Food Manufacturing
0
Job growth in recession
-16
-14
-12
-10
-8
-6
-2
0
Transportation Equipment
-5
Fabricated Metals
Machinery
-10
Primary Metals
Paper
Printing
Leather
Electrical Equipment
& Appliances
Computer &
Electronic Products
Apparel
-4
Textile Mills
Job growth in recovery
-15
-20
-25
2
Summary
•
•
Why is the recovery jobless?
–
Predominantly permanent, structural job losses
–
Slow job creation
Reasons for more structural change?
–
–
–
•
Investment overhangs
Counter-cyclical policy
Lean staffing
How did manufacturing fare?
–
Widespread structural job losses that persist
Prospects
• Job growth will require more confidence
• Robust job growth unlikely overnight—no
boost from recalls
• Ultimately, restructuring could lead to a
long, robust expansion, as did the jobless
recovery of the 1990s
• However, growth may not be in
manufacturing jobs
End of show
Note:
Copies of the August 2003 Current Issues in
Economics and Finance on which this talk is
based can be downloaded from
www.newyorkfed.org
Policy options
• Targeted temporary job creation credits
• Better education/training to improve
workers’ ability to adjust to change
• Public or private wage “insurance” for
workers--Kletzer and Litan
• Restore confidence in corporate
governance, accounting, business
environment
Mar-03
Mar-00
Mar-97
Mar-94
Mar-91
Mar-88
Mar-85
Mar-82
Mar-79
Mar-76
Mar-73
Mar-70
Mar-67
Proportion of workers that are selfemployed, 3-month moving average
Self-employment has surged during the
recovery
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
Is it offshoring?
• A weak labor market, plus spread to new industries means
workers have higher losses and more feel at risk
• Other causes of displacement are more important: technology,
taste shifts, competition, business conditions
• Numbers still small (and omit job gains from trade) compared to
normal flows, and there has been no surge of job loss
• Reflects our specialization in innovation (we constantly spin off
mature products, go on to the next big thing)
• Final product trade is all offshored, so intermediate-good trade
means we keep some (the highest value-added) jobs
• Will grow, but within limits:
– not everything can be offshored (e.g., confidential, hard to monitor, need
for face-to-face contact, etc.)
– much is experimental now, some will fail
– weak dollar, looser labor market will slow process
Unemployment rate by educational
attainment
Percent of the labor force, seasonally adjusted
13
13
11
11
9
9
Less than H.S.
7
7
High school diploma
5
5
Some college
3
3
Bachelor’s degree or greater
1
Jan-92
Jan-94
Source: Bureau of Labor Statistics
Note: Shading represents 2001 recession.
Jan-96
Jan-98
Jan-00
Jan-02
1
Jan-04
Median years tenure of employed workers
4.5
4
Male
3.5
Total
3
Female
2.5
1982
Source: Bureau of Labor Statistics
1987
1992
1997
2002
Discouraged workers have not increased
as a share of those out of the labor force
11%
10%
9%
8%
7%
6%
5%
Jan-94
Jan-96
Jan-98
Jan-00
Source: Bureau of Labor Statistics, authors’ calculations
Jan-02
Why are cyclical temporary
layoffs disappearing?
•
•
•
•
•
•
UI rule changes
Manufacturing jobs declining
Unionization declining
Rise of temporary help services
Opportunistic firing/closings
More structural changes during recessions
Mid-70s
20
Job Growth in Recovery
Cyclical
Expanding Industries
15
10
5
0
-30
-20
-10
0
10
20
30
-5
Declining Industries
-10
Job Growth in Recession
Source: Bureau of Labor Statistics, authors’ calculations
Counter-cyclical
Early 1990s
10
Job Growth in Recovery
Cyclical
Expanding Industries
5
0
-15
-10
-5
0
5
10
-5
-10
Declining Industries
-15
Job Growth in Recession
Source: Bureau of Labor Statistics, authors’ calculations
Counter-cyclical
Measures of available jobs show uptick in
second half of 2003
Tenporary help services employment (millions)
2.8
2.8
2.6
2.6
2.4
2.2
2.4
2.2
Current cycle
2
2
1.8
1.8
1.6
1.4
1.6
1.4
Early 1990s cycle
1.2
1.2
1
1
-12
-8
-4
0
4
8
12
Months after trough
16
20
24
Percent of people who say jobs are plentiful
60
Manpower survey (percent of firms adding jobs
minus those cutting jobs)
30
30
25
25
20
20
Current cycle
15
15
10
10
5
5
Early 1990s cycle
0
0
-12
-8
-4
0
4
8
12
Months after trough
16
20
24
Help wanted advertising/number of unemployed
60
1.3
50
50
1.1
1.1
40
40
0.9
0.9
30
0.7
30
0.7
Current cycle
Early 1990s cycle
20
10
20
0.5
10
0.3
0.5
0.3
Early 1990s cycle
Current cycle
0
0
-12
-8
-4
0
4
8
12
Months after trough
1.3
16
Source: Conference Board, Manpower Inc., BLS
Note: Shading indicates length of 2001 recession.
20
24
0.1
0.1
-12
-8
-4
0
4
8
12
Months after trough
Early 1990s turning point
Current cycle 1990s turning point
16
20
24
Temporary Layoffs: Manufacturing
Temporary Layoffs in manufacturing, % of Total Labor Force
1.0%
0.9%
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
Durable
Manufacturing
0.2%
0.1%
Non-durable manufacturing
0.0%
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Source: Bureau of Economic Analysis
Temporary Layoffs: Period 1
-6.00 -4.00 -2.00 0.00 2.00 4.00 6.00
0.00 2.00 4.00 6.00
Sam ple s pectral dens ity function
-6.00 -4.00 -2.00
Long term
0. 00
0. 10
0. 20
0. 30
F requency
0. 40
0. 50
E val uated at the natural frequenc i es
Temporary Layoffs: Period 2
-6.00 -4.00 -2.00 0.00 2.00 4.00 6.00
0.00 2.00 4.00 6.00
Sam ple s pectral dens ity function
-6.00 -4.00 -2.00
12 month
frequency
0. 00
0. 10
0. 20
0. 30
F requency
E val uated at the natural frequenc i es
Source: Bureau of Labor Statistics
0. 40
0. 50
Temporary Layoffs in Manufacturing: Period 1
-6.00 -4.00 -2.00 0.00 2.00 4.00 6.00
0.00 2.00 4.00 6.00
Sam ple s pectral dens ity function
-6.00 -4.00 -2.00
Long term
0. 00
0. 10
0. 20
0. 30
F requenc y
0. 40
0. 50
E val uated at the natural frequenc i es
Temporary Layoffs in Manufacturing: Period 2
-6.00 -4.00 -2.00 0.00 2.00 4.00 6.00
0.00 2.00 4.00 6.00
Sam ple s pectral dens ity function
12 month
frequency
-6.00 -4.00 -2.00
Six month
frequency
0. 00
0. 10
0. 20
0. 30
F requenc y
E val uated at the natural frequenc i es
Source: Bureau of Labor Statistics
Quarterly
frequency
0. 40
0. 50
1990-1991: Manufacturing Only
(NAICS Basis, 22 months)
8
Plastics
6
Wood products
Textiles
4
Food
Furniture
2
0
-10
-8
-6
-4
-2
Machinery
-2
-4
Fabricated Metals
-6
Transportation Equipment
Primary Metals
-8
-10
Durable Goods
Nondurable Goods
Computer and electronic products
-12
0
2
Petroleum
& Coal
Current Recession: Manufacturing
(NAICS Basis, through November 2002)
2
Food
0
-16
-14
-12
-10
-8
-6
-4
-2
0
-2
Fabricated Metals
-4
Transportation
Equipment
Primary Metals
Textile Mills
Printing
Electrical Equipment
& Appliances
-6
-8
Computer and electronic products
Apparel
Leather
Durable Goods
Nondurable Goods
-10
-12
2
2001 Recession: Manufacturing
(SIC Basis, through November 2002)
8
Tobacco
Job Growth in Recovery
4
-12
Fabricated Metals
Furniture &
Fixtures
Food
0
-8
Leather
Chemicals
-4
0
-4
Primary
Metals
Transportation
Equipment
Industrial Machinery
-8
Electronics &
Electric Equipment
Durable Goods
Nondurable Goods
-12
Job Growth in Recession
Petroleum
& Coal