Still Waiting (and Waiting) for Jobs to Return

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In his State of the Union speech last month, President Barack Obama said, "Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again. But we have never measured progress by these yardsticks alone. We measure progress by the success of our people. By the jobs they can find and the quality of life those jobs offer."

If that's the case, woe is us. The stock market is now back to where it was in early 2007, yet unemployment is double the rate of back then. Jobs are, in many ways, the lone missing link from a recovery that's otherwise been strong and broad.

When will the job famine end? Like all forecasting, the honest answer is: Who knows?

History, however, tends to be a good guide. And its message is clear: Good chance it'll be awhile before employment is back to normal.

The unemployment rate has averaged about 5.5% since 1950. Once recessions officially end, here's how long it's taken in the past to recover below that average:


Peak Unemployment Rate

Months After Recession Ended Before Unemployment Fell Below 5.5%

1953-1954 6.4% 3
1957-1958 7.7% 12
1960-1961 8.1% 15
1969-1970 6.6% 6
1973-1975 9.1% 43
1980-1982* 11.4% 61
1990-1991 8.2% 43
2001 6.5% 25
2007-2009 10.6% 19 and counting ...

Source: Bureau of Labor Statistics. *Technically two recessions separated by a few months. For simplicity, I'm counting them as one.

A couple things should stick out. One is that it's perfectly common for it to take several years after recessions before employment fully heals itself. Two: The deeper the unemployment, the longer the recovery. Our recent recession brought about the second deepest unemployment of post-World War II recessions, which should tell you something about what we're in for.

There are other, more specific, reasons to believe jobs will be agonizingly slow to return. I want to mention two that don't get discussed enough.

The first is housing -- housing starts, or new construction, to be specific. Housing starts are exceptionally low right now, last year averaging one-third of what they did 50 years ago. You can thank too much construction last decade for this. More importantly, you can expect the slump to continue. There are still too many unsold homes out there.

The result of all this is, of course, an evaporation of construction jobs. And despite construction jobs being a relatively small part of the overall job market -- making up about 5% of the total -- the amount of jobs lost from their cyclicality is enough that the overall job market has trouble doing well when housing starts are depressed.

This chart from the blog Calculated Risk sums it up. Bottom line: Low unemployment and low housing starts almost never occur at the same time. If housing starts are going to remain low for the time being, count on unemployment staying high. It's just how it works.

The next barrier is innovation. Obama also mentioned this during the State of the Union. "The first step in winning the future is encouraging American innovation," he said.

And he's right. The majority of new jobs don't come from small businesses, as is often repeated. They come from new businesses, and new businesses are born out of innovation.

The problem is how gummed up the American innovation machine is. Consider the U.S. Patent and Trademark Office's backlog of some 1.2 million pending applications.

"Hundreds of thousands of groundbreaking innovations ... are sitting on the shelf literally waiting to be examined," USPTO Director David Kappos said. "Jobs not being created, lifesaving drugs not going to the marketplace, companies not being funded, businesses not being formed."

The magazine Inc. detailed how desperate -- and dangerous -- the situation has become. In 2009, "in an effort to catch up with its paperwork, the agency rejected applications at an unprecedented 60 percent rate, including many that were later proved worthy of a patent."

Hard to expect job growth from innovation when it's that difficult to get permission to innovate. If we're looking for effective jobs stimulus, forget one-time tax rebates or Cash for Clunkers. Help the Patent Office do whatever it needs to do to get its act together.

The economy's moving in the right direction. Things are getting better. They really are. Just keep it all in perspective. Both history and the details of our current situation point to the possibility of it taking years for jobs to return to normal levels. It's happened before. It'll happen again. And it's probably happening now.

Keep waiting.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (14) | Recommend This Article (26)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 08, 2011, at 3:44 PM, naandrews wrote:

    When I saw the headline of this article, I thought it was going to be about Steve Jobs!

    Guess it's clear what this Apple shareholder has been thinking about recently!

    I hope both Jobs, and jobs, come back soon.

    Neil (long AAPL)

  • Report this Comment On February 08, 2011, at 4:36 PM, mikecart1 wrote:

    Obama doesn't know what he is doing. Every speech is about what is wrong, not about how to fix what is wrong. Not hatin' just stating the facts.

  • Report this Comment On February 08, 2011, at 7:07 PM, abbyz wrote:

    I thought the same thing, that this was going to be an article about AAPL and Steve Jobs.

    Good article, though.

  • Report this Comment On February 08, 2011, at 7:15 PM, cmfhousel wrote:

    Heh, I write about the labor market often, and have been accused more than once of the Steve Jobs lead-on. Apologies for the confusion. Unintentional.

  • Report this Comment On February 08, 2011, at 10:35 PM, KBOKSOFT wrote:

    I have come to believe the current, sustained high unemployment rates have little to do with the recent (but passed) recession.

    I believe we are looking at a significant working-class wage correction. As truthisntstupid points out, the $40/hr. wage for a high school education and half-page resume is unsustainable. It is (was) a bubble of sorts. That bubble has burst.

    Unfortunately, there are millions of unemployed blue-collar workers who were (apparently) worth $35-$40/hr. a few years ago, but who are now discovering they are worth about $8/hr. to the "new" (post-industrial) job market.

    The trouble is, the government is paying them $12/hr. in unemployment compensation to not take the $8/hr. job they are currently qualified for.

    If they were computer programmers, or doctors, or engineers -- well -- they probably wouldn't have even noticed the "Great Recession". But they can't simply become one of those things. There isn't going to be any "retraining" for these poor folks. They are the victims of changing times.

  • Report this Comment On February 08, 2011, at 10:48 PM, xetn wrote:

    Obama does not have a clue about how to create jobs. If he did, we would not have the current problem. Government does not create, it destroys. Government is a parasite and exists by taking from the productive and giving to the non productive, while taking a huge slice for itself. The only solution to the employment problem is to end government regulations, especially the minimum wage laws. The minimum wage laws eliminate jobs by pricing people out of jobs. Elimination of the minimum wage law would go a long way to ending the unemployment rate.

  • Report this Comment On February 09, 2011, at 2:19 AM, buddyglee wrote:

    its not unions or peoples pay ! we already know the problem and it was giving a mortgage to wal-mart workers. its u greedy people, not the GM worker that gets a little extra pay and some decent treatment

    gm blew it with their trash cars

  • Report this Comment On February 09, 2011, at 7:14 AM, drillerjim101 wrote:

    You've nailed it, Truthisnstupid.

    As an employer for 35 years, I've personally seen the that workers that love their work are more productive, creative, and willing to do whatever it takes to keep the customer satisfied. That in turn creates value and demand for more in the way of products and, JOBS!!!

  • Report this Comment On February 09, 2011, at 1:19 PM, slpmn wrote:

    Why do these discussions always immediately veer off into politics? Things like solving the problem of unemployment are extremely complicated. Its not as simple as blaming Obama or unions. Liberals and unions have been around in good times and bad. I can assure you that if unions were outlawed and regulations rolled back, the descent into the stone ages of working conditions for the labor class would be fast and furious. Get rid of the minimum wage? Well, I hope you're ok with shanty towns. Yes, jobs are moving to China and other low wage places because Americans demand more compensation. That's because we have higher living standards here and that's a good thing. i don't want to live in a community where half the population makes 50 cents an hour and an open sewer runs down the middle of the street. Yeah, I wouldn't be spending much time in that part of town, but I still don't want it in this country. If that means I have to pay taxes or a little more at the store, big deal. It's a small price to pay for living in "the greatest nation on Earth", isn't it?

  • Report this Comment On February 09, 2011, at 1:25 PM, drillerjim101 wrote:

    More taxes and higher prices artificially raised to cover Union demands will be a job killer every time.

    On the other hand, allowing market forces and the free enterprise system to work lowers costs and prices for everyone. And guess what? MORE JOBS!

    Our standard of living can never be regulated by taxes or the government without destroying incentives and JOBS.

  • Report this Comment On February 09, 2011, at 1:36 PM, slpmn wrote:

    I wish it were that simple, drillerjim101, I really do.

  • Report this Comment On February 09, 2011, at 1:41 PM, Glycomix wrote:

    We pay people not to work extended up to three years. Why should they? Farmers at the local curb market are making $18k/yr despite back-breaking work. They're angry that they're paying people not to work for three years with health benefits.

    You can't get a three year employment contract that guarantees payment without work. Why would someone in the trades take an uncertain job with demands, aggravation and performance requirements when you could play or work for someone off the book when you wanted to or fix your friend's cars, heating ducts, etc and pay no tax.

  • Report this Comment On February 11, 2011, at 12:03 AM, Thaeger wrote:

    A lot of jobs aren't just vanishing overseas...they're vanishing, period. As industry and technology continually evolve, you need fewer and fewer people for greater and greater production.

    Partly because of our increased productivity, US employers responded to the recession with far more layoffs than other countries that were in similar, or worse circumstances. In the US, workers are just another liquid asset, regardless of how much blood or sweat they've put into the company. In the absence of any worthwhile job protection, they're the easiest lever to pull for a company that wants to make its investors happy in the short term.

    The problem with this is that, for the same decrease in GDP, we have a greater increase in unemployment, resulting in further reduces in demand and GDP as fewer people are spending money, resulting in more layoffs, and so on.

    (An article from a while back, with actual numbers, etc, on the subject: )

    (For instance...Germany had a sharper decrease in GDP, but their unemployment actually decreased during the recession, so they were able to hit the ground running while the rest of us were still sitting around dazed).

    What I'm driving at is that, in terms of the economy as a whole, even a crappy union is worth its weight in gold, simply because they keep people employed, and keep them spending, which is ultimately what stabilizes demand, and allows us to recover from the recession.

  • Report this Comment On February 11, 2011, at 12:08 AM, Thaeger wrote:

    On a side note, does anyone have any insight on when unemployment will start seeing an impact from the retiring baby boomer crowd?

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