Jobless Recovery

I was asked yesterday about what's happened to private sector employment and government employment during the recovery.  The numbers below reflect the change in each type of employment from June 2009 to September 2011 (27 months):

Total employment: +841,000

Total private employment: 1,413,000
Total government employment: -572,000
Total federal government employment: +6,000
Total state & local government employment (education): -217,000
Total state & local government employment (not education): -360,000

Given the above figures, private employment has increased by just over 52,000 per month since the end of the recession.  The strongest growth in private employment took place between February 2010 (when employment bottomed) to April 2011, during which the private sector added over 2 million jobs, just over 150,000 jobs per month.  Since April, the economy has added about 100,000 jobs per month.  Most economists think that jobs growth should be well in excess of 200,000 coming out of a recession (it averaged almost 300,000 per month coming out of the 1981-82 recession, the last time the unemployment rate reached 10%).

Why has employment growth been so weak?  In order for the economy to generate a significant number of new jobs, economic growth needs to exceed the growth in productivity.  For example, if output per worker rises by 1% and the US economy grows by 2%, the number of workers increases by the difference, 1%.  Why was there so many jobs created following the 1982 recession but not this time?  The number of jobs stopped declining in the first quarter of 2010.  Since then, the economy grew by 2.58%, output per worker grew by 0.62%, and employment grew by 1.95%.  During a comparable period following the 1982 recession, economic growth was 9.8%, output per worker rose by 3.3%,  resulting in employment growth of 6.33%.

Why aren't companies hiring workers?  The answer may sound too simplistic, but it's because economic growth (sales) is too weak.  Other issues may be playing a small role  in limiting job creation (uncertainty, regulation, cost of hiring workers, etc.), but it comes down to weakness in economic growth.  The best policy for job creation is one that results in sustainable economic growth.  Unfortunately, that's easier said than done following a financial crisis as consumers deleverage and the financial system heals.