Slow Job Growth Stalls Recovery

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Cincinnati Enquirer Article

Does it feel to you as if the economy is finally in recovery? In some respects it is, but many Americans are not feeling that way at all. In spite of an increase in the overall level of production, most Americans remain wary. They don't seem to have confidence that this trend will continue.

The Conference Board Consumers Research Center found signs of some improvement in consumer confidence, yet it still lags behind past recoveries. Although apprehension about the economy's future is dissipating, consumers remain worried; they appear to be in a prolonged state of funk. Households (and businesses as well) are choosing to forgo spending in order to pay down their debt. This will improve their financial stability, but, at the same time, will inflict a long-term drag on our nation's economic growth.

Decreased consumer spending is the knotty problem of slow job growth. Each month there are about 150,000 new entrants into the U.S. labor market due to a growing population. Just to keep the unemployment rate from increasing, the nation needs to come up with 150,000 new jobs per month. We must produce many more jobs than that if we are to make a significant dent in the unemployment rate, 9.7 percent in May.

Over the past nine months of production growth, we have had only three months where employment has increased by more than 150,000, and much of the increase in those months was due to the Census Bureau hiring for jobs that will be temporary.

Economists feel that the economy must grow by nearly 6 percent a year in order to shave a couple of percentage points from the unemployment rate. Yet for the past nine months, our growth rate was about 3.5 percent.

Consumer spending and the level of production tell only part of the slow job growth story. Today's job market isn't your mother's or father's job market. Those were the days of temporary layoffs that usually involved low-skilled workers, most of whom would get re-hired after a bounce-back in the economy.

Today, the labor force has higher skills that are specific to a particular job. These skills might not be easily transferred to another job, and it is harder to match the needed skill with the available job. Thus, it is costlier to find the right workers, and it will take longer to replenish a workforce after a recession.

Some of the jobs lost during the recession may never return. Many businesses found ways to reduce costs while maintaining production levels, and they no longer need as many employees. If you add in the uncertainty about the vitality and sustainability of this recovery and the unknown impact of the newly passed health care legislation or financial reforms, many employers are pulling back to a wait-and-see position.

On the positive side, the national economy has experienced production growth, an increase in productivity and a growing labor force. All of these bode well for the future.

Significant job growth, which usually is one of the last things to improve in a recovery, will occur when uncertainty about the economy diminishes.

George Vredeveld is director of the Economics Center for Education and Research and Alpaugh Professor of Economics at the University of Cincinnati's College of Business.