Addressing the Looming U.S. Job Challenge

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Addressing the Looming U.S. Job Challenge

For most Americans, the biggest disappointment with our "recovery" from the Great Recession is the lack of job growth. For them, the kind of rapid return to prerecession employment levels that we witnessed in most previous recessions would represent the only tangible indicator that the recession is truly over.

However, a recent in-depth study by the McKinsey Global Institute concludes that prerecession unemployment levels are still a long way off.1 That means that, for some time to come, the big question will be, "Is it over yet?"

Jobless Recoveries

As the McKinsey study highlights, the recession caused:

  • A decline of 7 million U.S. jobs since December 2007
  • A drop of 23 percent in the rate of new business formation since 2007
  • A rise in the proportion of men in the population who are not working to 20 percent, compared to 7 percent in 1970

There have, of course, been lots of recessions prior to this one. However, in the past two decades, there has been a clear trend toward so-called "jobless recoveries."

For recessions that occurred after World War II, but prior to the 1990s, employment recovered to its prerecession level within about six months after the end of the recession. But, after the 1990-91 recession, the employment recovery took 15 months — and, after the 2001 recession, it took 39 months.

Based on the current rate of job creation, McKinsey concludes that employment won't return to prerecession levels until 60 months after GDP rebounded to its prerecession level, which took place in December of 2010.

At least four reasons are offered for these increasingly slow job recoveries:

  • First, as companies compete more and more globally, they find it necessary to become more and more efficient. In past recessions, companies were able to retain workers even though it meant sacrificing some productivity and, therefore, profitability. When demand returned, they were immediately ready to gear back up, which also drove up profitability. Facing today's global economic realities, companies quickly reduce their workforces in response to downturns. Meeting lower customer demand with greater efficiency means retaining profitability. Once they've experienced these improved efficiencies, companies find that they need fewer people and they are slower to rehire...

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