Has Structural Change Contributed to a Jobless Recovery?

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

-2

-1

0

1

2

3

4

5

6

7

8

-12 -9 -6 -3 Trough 3 6 9 12 15 18 21 24 27 30-2

-1

0

1

2

3

4

5

6

7

8

Source: Bureau of Labor Statistics, authors’ calculationsNote: Shading indicates length of 2001 recession.

Average of previous cycles

Early 1990s cycle

Current cycle

Months after trough

Percent change from trough Percent change from trough

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

AGENDAIf 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

0

2

4

6

8

10

12

Jan-67

Jan-69

Jan-71

Jan-73

Jan-75

Jan-77

Jan-79

Jan-81

Jan-83

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

0

2

4

6

8

10

12

Source: Bureau of Labor Statistics, authors’ calculationsNote: Shading represents NBER recessions.

Percent of the workforce, seasonally adjusted

Civilian unemployment rate

Unemployment ratewithout temporary layoffs

Temporary layoff rate

Percent of the workforce

In the 1990s and 2001 recessions, temporary layoffs contributed little to rise in joblessness

0

2

4

6

8

10

12

Jan-67

Jan-69

Jan-71

Jan-73

Jan-75

Jan-77

Jan-79

Jan-81

Jan-83

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

0

2

4

6

8

10

12

Source: Bureau of Labor Statistics, authors’ calculationsNote: Shading represents NBER recessions.

Percent of the workforce, seasonally adjusted

Civilian unemployment rate

Unemployment ratewithout temporary layoffs

Temporary layoff rate

Percent of the workforce

6%11%30%52%25%

38%

How job flows classify industry adjustments during a recession and its recovery

-60

-40

-20

0

20

40

60

-60 -40 -20 0 20 40 60

Percent Job Growth in Recession

Pe

rce

nt

Jo

b G

row

th in

Re

co

ve

ry Procyclical flows Structural gains

Structural losses Counter-cyclical flows

Many industries had a cyclical experience during the early 1980s

-15

-10

-5

0

5

10

15

20

-60 -40 -20 0 20 40 60

Percent Job Growth in Recession

Pe

rce

nt

Jo

b G

row

th i

n

Re

co

ve

ry

Securities and Commodities Brokers

Primary Metal Industries

Oil and Gas Extraction

General Building Contractors

Railroad Transportation

Procyclical flowsStructural gains

Structural losses Counter-cyclical flows

Current pattern: most industries in structural quadrants

(NAICS basis, through January 2004)

-25

-20

-15

-10

-5

0

5

10

15

-20 -15 -10 -5 0 5 10

Other

Leisure & Hospitality

Professional & Business Services

FIRE

Construction

Wholesale Trade

Retail

Transportation & Utilities

Manufacturing

Educational & Health Services

Information

Internet publishing & broadcasting

Computer & electronics mfg.

Telecommunications

Air transportation

Administrative & supportservices

Educational services

Ambulatory health care services

Electrical eqpt.& appliances mfg.

Procyclical flows

Structural losses

Structural gains

Percent change in payroll jobsduring the recession (Mar 01-Nov 01)

Percent change in payroll jobsduring recovery (Nov 01-Jan 04)

Local govt.educational services

State govt. educational services

Specialty trade contractors

Food services & drinking places

Accommodations

Real estate

Apparel

Textile mills

Publishing, ex internetMachinery

Scenic & sightseeing transportation

Warehousing & storageCouriers & messengers

Hospitals

Motion picture & sound recording

Funds &Trusts

Social assistance

Membership associations

Mid-1970s

49%51%Cyclical

Structural

Source: Bureau of Labor Statistics, authors’ calculations

Early 1990s

43%57%Cyclical

Structural

Early 1980s

49%51%Cyclical

Structural

During earlier periods, structural and cyclical adjustments accounted for equal parts

Mid-1970s

51% 49%Cyclical

Structural


Early 1990s

43%57%Cyclical

Structural

Current

21%

79%

Cyclical

Structural

Early 1980s

49%51%Cyclical

Structural

Structural adjustments now dominate

2. Reasons for more structural change

• Investment overhangs

• Effective counter-cyclical policy

• Lean staffing

Investment overhangs:9 of 19 hot industries now “declining”

-25

-20

-15

-10

-5

0

5

10

-20 -15 -10 -5 0 5 10

Internet Publishing & Broadcasting Telecommunications

Administrative & Support

Educational services

ISP’s, Search Portals& Data Processing

Sightseeing Transportation

Social assistance

Funds & Trusts

Motion Pictures, Museums & Zoos

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

6.5

7

7.5

8

8.5

9

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

6.5

7

7.5

8

8.5

9

Job losses (all employers)

Source: Bureau of Labor StatisticsNote: Shading represents NBER recession.

Percent of employment, quarterly rate, seasonally adjusted

Weak job creation (falling since 2000) underlies the jobless recovery

6.5

7

7.5

8

8.5

9

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

6.5

7

7.5

8

8.5

9

Job gains (all employers)

Job losses (all employers)

Source: Bureau of Labor StatisticsNote: Shading represents NBER recession.

Percent of employment, quarterly rate, seasonally adjusted

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

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Temporary layoffs now a much smaller factor in manufacturing recessions

Source: Bureau of Labor Statistics

Temporary layoffs as a % of manufacturing labor force

Durable Manufacturing

Non-durable manufacturing

Mid-1970s recession: a cyclical pattern in manufacturing

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-3

0

3

6

9

12

15

-25 -20 -15 -10 -5 0

Job Growth in Recession

Jo

b G

row

th i

n R

ec

ov

ery

Source: Bureau of Labor Statistics, authors’ calculations, SIC basis

Primary MetalsIndustrialMachinery

Lumber & Wood

Furniture & Fixtures

Electronics &Electric Equipment

Petroleum& Coal

Apparel

Leather

Transportation Equipment

Instruments

Food

FabricatedMetals

Durable GoodsNondurable Goods

1980’s recession in manufacturing, also cyclical

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-5

0

5

10

15

20

-40 -30 -20 -10 0 10 20 30


Jo

b G

row

th i

n

Re

co

ve

ry

Petroleum& CoalTobacco

Lumber and wood

Primary Metals

Leather

Printing & Publishing

TransportationEquipment


IndustrialMachineryDurable Goods

Nondurable Goods


1990 recession in manufacturing: mostly structural, but industries that lost most during the recession did

best during the recovery

-6

-4

-2

0

2

-10 -8 -6 -4 -2 0 2


Jo

b G

row

th i

n

Re

co

ve

ry

Petroleum& Coal

Food

Lumber and wood

Leather



Furniture &Fixtures

Rubber &Plastics

PrimaryMetals

Fabricated Metals



2001 recession in manufacturing was purely structural, however you look at it

(Through November 2002)

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-8

-4

0

4

8

-12 -10 -8 -6 -4 -2 0 2


Tobacco

Industrial Machinery

Leather


Furniture &Fixtures


PrimaryMetals

Fabricated MetalsFood

Petroleum& Coal

Chemicals


-12

-8

-4

0

-16 -14 -12 -10 -8 -6 -4 -2 0 2

TransportationEquipmentPrinting

Electrical Equipment& Appliances

Fabricated Metals

Primary Metals

Textile Mills

Computer and electronic productsApparel

Leather

FoodDurable GoodsNondurable Goods

NAICS

SIC

Job

Gro

wth

in

Rec

ove

ry

2001 recession in manufacturing remains structural

(NAICS Basis, through March 2004)

-25

-20

-15

-10

-5

0-16 -14 -12 -10 -8 -6 -4 -2 0 2

ApparelTextile Mills

Leather

Computer & Electronic Products


Primary Metals

Food Manufacturing

Machinery

Fabricated Metals

Printing

Paper



Job growth in recovery

Job

gro

wth

in

rec

essi

on

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 fromwww.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

Self-employment has surged during the recovery

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

Ma

r-6

7

Ma

r-7

0

Ma

r-7

3

Ma

r-7

6

Ma

r-7

9

Ma

r-8

2

Ma

r-8

5

Ma

r-8

8

Ma

r-9

1

Ma

r-9

4

Ma

r-9

7

Ma

r-0

0

Ma

r-0

3

Pro

po

rtio

n o

f w

ork

ers

th

at

are

se

lf-

em

plo

ye

d,

3-m

on

th m

ov

ing

av

era

ge

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

1

3

5

7

9

11

13

Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04

1

3

5

7

9

11

13

Less than H.S.

Some college

Source: Bureau of Labor StatisticsNote: Shading represents 2001 recession.

High school diploma

Bachelor’s degree or greater

Percent of the labor force, seasonally adjusted

Median years tenure of employed workers

2.5

3

3.5

4

4.5

1982 1987 1992 1997 2002

Female

Total


Male

Discouraged workers have not increased as a share of those out of the labor force

5%

6%

7%

8%

9%

10%

11%

Jan-94 Jan-96 Jan-98 Jan-00 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

-10

-5

0

5

10

15

20

-30 -20 -10 0 10 20 30


Jo

b G

row

th in

Re

co

ve

ry


Cyclical Expanding Industries

Declining Industries Counter-cyclical

Early 1990s

-15

-10

-5

0

5

10

-15 -10 -5 0 5 10


Jo

b G

row

th in

Re

co

ve

ry


Cyclical Expanding Industries

Declining Industries Counter-cyclical

Tenporary help services employment (millions)

1

1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

2.8

-12 -8 -4 0 4 8 12 16 20 24Months after trough

1

1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

2.8Manpower survey (percent of firms adding jobs

minus those cutting jobs)

0

5

10

15

20

25

30


0

5

10

15

20

25

30

Measures of available jobs show uptick in second half of 2003

Source: Conference Board, Manpower Inc., BLSNote: Shading indicates length of 2001 recession.

Percent of people who say jobs are plentiful

0

10

20

30

40

50

60


0

10

20

30

40

50

60

Current cycle

Early 1990s cycle

Current cycle

Early 1990s cycle

Early 1990s cycle

Current cycle

Current cycle

Early 1990s cycle

Help wanted advertising/number of unemployed

0.1

0.3

0.5

0.7

0.9

1.1

1.3


0.1

0.3

0.5

0.7

0.9

1.1

1.3

Early 1990s turning pointCurrent cycle 1990s turning point

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Temporary Layoffs: Manufacturing

Source: Bureau of Economic Analysis

Temporary Layoffs in manufacturing, % of Total Labor Force

Durable Manufacturing

Non-durable manufacturing

-6

.00-4

.00-2

.000

.002

.004

.006

.00

-6

.00-4

.00-2

.000

.002

.004

.006

.00

Log

Pe

rio

do

gram

of no

rm

tem

p

0.00 0.10 0.20 0.30 0.40 0.50Frequency

Evaluated at the natural frequencies

Sample spectral density function

-6

.00-4

.00-2

.000.0

02.0

04.0

06.0

0

-6

.00-4

.00-2

.000.0

02.0

04.0

06.0

0

Log

Pe

rio

do

gram

of no

rm

tem

p

0.00 0.10 0.20 0.30 0.40 0.50Frequency



Temporary Layoffs: Period 1


Temporary Layoffs: Period 2

12 month frequency

Long term

-6

.00-4

.00-2

.000.0

02.0

04.0

06.0

0

-6

.00-4

.00-2

.000.0

02.0

04.0

06.0

0

(m

ea

n) tl_

norm

_lf_m

an

Log

Pe

rio

do

gram

0.00 0.10 0.20 0.30 0.40 0.50Frequency



-6

.00-4

.00-2

.000.0

02.0

04.0

06.0

0

-6

.00-4

.00-2

.000.0

02.0

04.0

06.0

0

(m

ea

n) tl_

norm

_lf_m

an

Log

Pe

rio

do

gram

0.00 0.10 0.20 0.30 0.40 0.50Frequency



Temporary Layoffs in Manufacturing: Period 1


Temporary Layoffs in Manufacturing: Period 2

Six month frequency

12 month frequency

Long term

Quarterly frequency

1990-1991: Manufacturing Only(NAICS Basis, 22 months)

-12

-10

-8

-6

-4

-2

0

2

4

6

8

-10 -8 -6 -4 -2 0 2

Computer and electronic products

Wood products


FurnitureFood

Plastics

Textiles

Primary Metals

Petroleum& Coal

Fabricated Metals

Machinery


Current Recession: Manufacturing(NAICS Basis, through November 2002)

-12

-10

-8

-6

-4

-2

0

2

-16 -14 -12 -10 -8 -6 -4 -2 0 2

Apparel

Textile Mills

Leather

Computer and electronic products


Food

Printing


Primary Metals

Fabricated Metals


2001 Recession: Manufacturing (SIC Basis, through November 2002)

-12

-8

-4

0

4

8

-12 -8 -4 0


Job

Gro

wth

in R

eco

very

Tobacco

Industrial Machinery

Leather


Furniture &Fixtures


PrimaryMetals

Fabricated MetalsFood

Petroleum& Coal

Chemicals


Documents

Has Structural Change Contributed to a Jobless Recovery?