When did the U.S. labor market slow down?

Scott Winship, at his new Brookings gig, reports:

The bleak outlook for jobseekers has three immediate sources.  The sharp deterioration beginning in early 2007 is the most dramatic feature of the above chart (the rise in job scarcity after point C in the chart, the steepness of which depends on the data source used).  But two less obvious factors predated the recession.  The first is the steepness of the rise in job scarcity during the previous recession in 2001 (from point A to point B), which rivaled that during the deep downturn of the early 1980s.  The second is the failure between 2003 and 2007 of jobs per jobseeker to recover from the 2001 recession (the failure of point C to fall back to point A).

Unemployment increased during the 2001 recession, but it subsequently fell almost to its previous low (from point A to B and then back to C). In contrast, job openings plummeted—much more sharply than unemployment rose—and then failed to recover. In previous recoveries, openings eventually outnumbered job seekers (where a rising blue line crosses a falling green line), but during the last recovery a labor shortage never emerged.

…Whatever the causes, the evidence is clear that the health of labor markets were compromised well before the recession.

There is much more at the link, including some very good graphs.

Comments

Two related points of interest:

The ratio of part-time workers to the total number of employed.

What caused jobs for teens to disappear between 2001 and 2007....

Re teens: Divergent household-economic outcomes?

Many upper middle class joined the growing trend of TAKING COLLEGE SERIOUSLY, so the kid is filling out hers/his resume with sports, or being tutored.

Many lower class families stagnated: mom took 2 jobs so the teenager had to babysit.

There's my "just so" story.

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"When did the U.S. labor market slow down?"

When China embraced capitalism and when Silicon Valley embraced the PC. It's hard to compete with an equivalently educated, but much hungrier, workforce. And of course technological advancements continue to render the need for moderate-low skilled workers moot. I think about this frequently when I go to the market and one employee monitors a bank of 12 "Do It Yourself" checkout stands. That's one employee versus probably 6 to 9 during peek hours that would have been making union wages a few years ago.

Progress can be a harsh mistress.

I think this probably has a lot to do with the trouble. What is the standard economists' rebuttal to this?

Hogwash! Every work in America that looses their manufacturing job will get a job as a product designer/programmer because that is where our country's comparative advantage lies. We just need to make the appropriate investments in education and we'll all be better off than before.

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Are you serious? The rebuttal is the history of our economies since the beginning of the industrial revolution. Change checkout stands on the comment above to elevator operators and you get the exact same scenario but 40 years earlier. Change that to horse and buggy owners and you go back 100 years. Innovation is always disruptive and what we see now is nothing new.

Past performance is not a reliable indicator of future performance. 250 years of industrial revolution is a drop in the bucket of human history.

Not that I'm ready to say "this time is different," but it's worth considering whether we've reached a point of development that no longer benefits the median worker. Maybe someone should write an e-book about that.

But we should then ask why development no longer benefits the median worker. And I don'lt think the answer will be "this is a natural evolution". I think rather we will find a myriad public policy decsions (and non-decisions-- that is, decisions to do nothing) at the root of that problem.

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If you look at the composition of the labor force two years after the last turnaround (2003), you will see an increase in construction and government employment, both of which are lacking in this turnaround, with a collapsed housing market and state and local government layoffs. Private sector job growth, (ex finance, real estate and construction), is on the path back, but that is being offset by employment losses in the government sector.

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I know this article is right because it exactly matches my own theories on some of our employment problems. Therefore, in the spirit of our age, I will work feverishly to avoid any challenges to the article's conclusion.

More seriously, I have a question/thought and I was hoping someone here might be able to direct me towards discussion of the issue -if any exists. My macro is weak, and dated, and I'd be interested to see if I'm completely out to lunch on this idea- so here goes. My feeling is that the general understanding of inflation (a broad increase in the cost of goods and services) is not really possible given the current labor market (this post would give some credence to the problems with the labor market as I see them.) That is to say, we can't inflate the cost of labor under the present scenario, only the cost of raw materials. Accordingly, the problem of inflation is much worse for the average worker than it typically would be becasue the price of things he must buy keeps rising, but his wages don't (or don't increase at nearly the same rate.)

Is that a feasible scenario theoretically or practically? Is there any discussion of such somewhere? Any assistance would be greatly appreciated.

Maurice, What you are describing is the stagflation of the 70's. I would give up on the idea that labor, in general, has much market power that it could demand higher wages during a period of non-labor induced inflation. Just look up stagflation and you will see what you describe.

With stagflation, though growth is limited, you do (or did) have "broad-based" inflation such that wages are (were) actually increasing as well. I'm envisioning a scenario where "inflation" does not drive up wages, only the price of goods.

I'm aware that their can be no pure separation between the price of labor and the price of goods- as commodity prices go up, some wage growth will have to follow (mostly at the top-end of the labor market in my theory)- but if the overall price of labor increase isn't consistent with what has typically been viewed as "inflationary", the whole of the economy might not look like it is suffering from inflation under our traditional definition.

In short, the favorability, to buyers, in the market for labor would be so pronounced (particularly in certain quarters of the labor market) that such would mask the substantial inflation in the price of goods.

Maurice,

Here are the charts on wage inflation during the period of stagflation. http://econ161.berkeley.edu/econ_articles/theinflationofthes.html Real wages did not increase, and declined. "All measures of price inflation show three cycles, the first peaking in 1969, the second in 1973-74, and the third in 1980-81 at the highest level of inflation.
Measures of wage inflation suggest a somewhat different picture. Wage inflation increases sharply in the mid- to late-1960s, from around 3 percent per year on average to some seven percent per year. Thereafter it drifts upward, reaching a peak of some nine percent per year by the beginning of the 1980s. The large cycles in price inflation are absent from movements in nominal wages: "special factors" like oil shocks, food price shocks, shortages, and so forth are hard to detect in the pattern of nominal wage movements."

Here are the charts and text. http://econ161.berkeley.edu/econ_articles/theinflationofthes.html

I think you miss his point. The real answer is a collapse in living standards for wage earners, which is what we would expect given a sudden and large shift in negotiating leverage. Basically, if nominal prices rise but nominal wages do not (because some one hungrier will always take your job) then you suck it up and consume less. Meanwhile being VERY angry about it and looking for some one to blame. Hence the inherent dangers of allowing living standards to drop for large numbers of people- eventually they will burn it all down out of spite.

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Phikl,

If people "suck it up and comsume less" then how can prices rise? If a vendor finds that fewer people are buying his goods/services when he raises his prices, isn't the only sensible solution (perhaps the only possible solution, assuming the vendor does not want to end up in banktuptcy) to lower prices? I do not see how it's possible to support general inflation (not just isolated or sector inflation, where cost shifting can occur) without an increase in wages.

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The late '90s/ early '00s recession was deeper and longer than the official record.

What late 90s recession? Up until early 2000 the economy was actually a bit over-heated.

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The number of jobseekers increased substantially because George W. Bush wasn't serious about keeping out illegal immigrants.

"George W. Bush wasn’t serious about keeping out illegal immigrants."

Really. GWB loved illegals. Typical quote

"Family values do not stop at the Rio Grande river, is what I used to tell the people of my state. People are coming to put food on the table. They're doing jobs Americans will not do."

The Bush administration only started to show any interest in immigration enforcement after the Amnesty bills of 2006 and 2007 failed.

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Interestingly, employment in the manufacturing of computer & electronics fell in every year from 2000 to
2010..

Manufacturing may have, but did the complements--software programing, computer maintenance and service, systems integration, etc.--decline. I doubt it. So, what you have is declining cost of hardware made overseas and more value added and employment in the complements to hardware, particularly as the hardware also begins to serve additional functions, such as telecommunication.

I would love to see some numbers on how Apple's headcount has changed over the lat 10 years. I'm sure it's gone up considerable, but how much relative to net income? How many do they indirectly employ in China?

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We have an economy built on illusions.

And the biggest illusion, that we were all richer because houses had doubled in price, fell apart.

Consumption is not wealth. The ability to produce things people actually want is wealth.

The failure to recognize this and other simple facts is why we are here.

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The problem is obvious: labor markets aren't flexible enough. We need to get unionization rate down from 13% to 0 and abolish the minimum wage, 5 day work week, and child labor laws.

We need five year old boys sweeping chimneys to get the economy moving again.

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I suppose that in the minds of people who believe that it's all AD/AS, this could somehow justify George W. Bush's deficits and increases in spending, especially the largest ones (in 2001 and 2002).

But I think that, like the link, it points to something else, something structural.

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That's because the housing bubble began in 1996, not in the 2000s. The commercial real estate bubble was inflated, deflated, then inflated again. We've had far too many resources going into residential and commercial development for far too long, fueled by foreign surpluses and US debt. Government was not only providing subsidies, it reaped great benefits from increasing but unsustainable tax revenues.

A real estate boom began in the late 90s. But it did not develop into a bubble until the early 00s when low interest rates and the lack of other (thought-to-be) secure investment opportunities began blowing housing up well beyond what the fundamentals could support.

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The big bosses are keeping too much money to themselves, so there is not enough money left over to pay all the peons to work. That's why unemployment is at guote 9.1 percent, unquote, and never mind underemployment. The gradual increase in income of the top 1% of income earners, from about 9% total national personal income in 1980 to about 23% today was first compensated for by increased borrowing by US middle and working classes. Their borrowing sustained demand and employment. They can borrow no longer, so now the bottom line, weak demand and high unemployment, shows. JBTW, deleveraging is impossible, but that is another matter.

Unless the income distribution is restored, (or everybody else's wages decline,) unemployment will remain high.

See: http://anamecon.blogspot.com/2011/09/unemployment-average-wage-and.html.

And since the top 1% basically control the government, and since they are apparantly in it for themselves, we can guess what kinds of policies the government will adopt. Destroying Social Security, for instance, of which making it no longer self sustaining would be the first step, will effectively lower everyone else's wages.

Obama's palliatives will have no lasting positive effect.

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Saying that the v-u ratio in 2000 was low isn't saying much, since that's what you'd expect in the tightest peacetime labor market since 1951. Based on the green line (the actual vacancy data), point 'C' isn't that much worse than December 2000. Which is what you would expect if labor markets were actually pretty good in 2007.

I really wish that good vacancy data went back to the early '90s. We're stuck extrapolating V using help wanted, exactly during a period when the relationship between these two things shifted in a major way.

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...and during the same time frame, the stock market has been moving in a long term sideways motion, while inflation has been low....(waiting for the penny to drop).....so does this mean we have been having 10 whole years of lack of confidence in government? that we have been suffering from 10 years of such increased political and regulatory risk that our " Gaults" are afraid to invest in the workforce? (no of course not, what am I thinking...)

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