Where All The Jobs Went

Here's a sobering statistic: All nine recessions between 1948 and 1990 saw employment return to pre-recession levels within 31 months. Today, 42 months after our recession began, we've only regained about a fifth of lost jobs -- and population growth has made those meager gains irrelevant. The average duration of unemployment is now three times longer than the 1960-2007 average -- 40 weeks vs. 13 weeks. This is terrible stuff.

How we got here is well-known: bubble, financial crisis, recession, deleveraging. It's an ugly combination.

Where it happened isn't discussed as much, but the numbers tell an interesting story.

Private employers make up about 84% of all jobs, with government employing the remaining 16%. But since the recession began, the composition of job losses hasn't followed that divide evenly:

Sources: Bureau of Labor Statistics and author's calculations. Data excludes 2010 Census hiring and layoffs.

Since the recession hit in late 2007, private employers have shed 4.2 million jobs, while government payrolls have dropped by 350,000.

Government payrolls typically blunt the bleeding of the private sector during a recession. Early on during this past recession, that was the case. But then things turned. Since January 2010, private employers have added 2 million jobs, while government employment has shrunk by nearly half a million jobs. The opposite was true after the 2001 recession: Private employers shed 884,000 jobs from 2001-2003, while governments added 174,000.

Most of the recent drop in government jobs has been at the state and local level, which have been hammered by plunging tax receipts. State jobs have fallen by more than 300,000 since early 2010; local governments have fallen by roughly the same amount. Contrary to popular rhetoric, the long-term trend in federal workers has been flat to down. There are 15% fewer federal employees today than there were in 1990, and the same number as there were in 2000. Much of the decline can be traced to the Postal Service, which shed 150,000 jobs since 2007 alone, or one-fifth of its total.

Within the private sector, the overwhelming majority of job cuts fell on three sectors: manufacturing, construction, and retail. Those three plus financial services account for 80% of all private jobs lost:

Sources: Bureau of Labor Statistics and author's calculations.

Keep in mind, construction employment is down, but it's down from a time when the industry was grossly overgrown and fueled by a bubble. Nearly a quarter of all new jobs created from 2003 to 2006 were housing-related. Most of these jobs never would have been created without a bubble, and so the culling over the past three years has been more a reversion to normalcy than a slash-and-burn. The same is true for financial services. Legions of real estate agents and mortgage bankers have lost their jobs over the past three years, but the sad truth is many of those jobs never should have existed in the first place.

Then there's manufacturing. Manufacturing jobs have been disappearing for decades, declining 27 of the past 41 years. The last three years were simply an acceleration of a long-term trend -- albeit a very sharp acceleration. As I've written before, much of the decline is due to increased productivity, or technology replacing bodies. Most of the rest is due to offshoring. At any rate, the worst of the manufacturing fallout could well be over. Productivity growth looks topped out, increased shipping and labor costs have diminished Asia's competitive advantage, and -- at least anecdotally -- both GM (NYSE: GM  ) and Ford (NYSE: F  ) have been recalling laid-off workers.

Part of the problem in manufacturing is that the jobs that are available require skills most job searchers simply don't have. Incredibly, there are more manufacturing job openings today than there were in 2003. Some companies just can't fill those openings. As The New York Times wrote last year:

[S]upervisors at Ben Venue Laboratories, a contract drug maker for pharmaceutical companies, have reviewed 3,600 job applications this year and found only 47 people to hire. ... All candidates at Ben Venue must pass a basic skills test showing they can read and understand math at a ninth-grade level. A significant portion of recent applicants failed, and the company has been disappointed by the quality of graduates from local training programs. It is now struggling to fill 100 positions.

Such stories might be more widespread than you think. Former President Bill Clinton noted last year that for the first time in his lifetime, job openings are going up at twice the rate of job hires. And it's not just manufacturing. In a recent interview, Dow Chemical (NYSE: DOW  ) CEO Andrew Liveris said he thinks more than 1 million science and technology jobs will open up this year, but only 200,000 new graduates will have the skills necessary to apply.

Where are jobs growing? In two words: health care. The other end of surging medical costs is that there's surging amounts of money for medical employment. More than 1 million health-care jobs have been added since 2007 -- the only major industry to grow over that period. Plenty think this trend isn't anywhere close to being over. The Bureau of Labor Statistics projects health care jobs will grow by a quarter between 2008 and 2018, adding 4 million new jobs and "about 26 percent of all new jobs created in the U.S. economy."

Perhaps the most difficult figure to come to terms with is how long it could be before jobs return to normal. Barring an unforeseen miracle, most respected economists don't see employment hitting pre-recession levels until 2014 at the earliest. At current growth rates, it would be far longer than that. In an interview last week, Berkshire Hathaway (NYSE: BRK-B  ) Chairman Warren Buffett offered a little optimism, saying, "We will come back big time on employment when residential construction comes back. ... You will be surprised, in my view, how fast employment changes when that happens."

That, alas, could be years away.

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

Fool contributor Morgan Housel owns shares of Berkshire. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Berkshire Hathaway and Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors, Ford Motor, and Berkshire Hathaway. 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 (6) | Recommend This Article (23)

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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 July 19, 2011, at 4:30 PM, Brent2223 wrote:

    If Mr. Buffett thinks residential construction will 'come back', is that counter to the argument that there was a bubble? Great article, but I think the Buffett quote lets some air out of the tires, at least without a little more context.

  • Report this Comment On July 19, 2011, at 4:36 PM, TMFHousel wrote:

    Brent,

    Thanks for your comments. Arguing that something will rise from current levels isn't contradictory to saying it was a bubble in the past -- especially if that something has crashed, as housing has.

    During the boom years, household formation was 1m/yr, and new housing construction was 2m/yr. Today household formation is still 1m/yr, but new home construction is 500k/yr. Over time, that construction will revert back to the 1m/yr level needed to support household formation.

    For more context on Buffett's quote, here's the full video: http://www.bloomberg.com/video/72140684/

  • Report this Comment On July 19, 2011, at 5:09 PM, Brent2223 wrote:

    Thanks, that info is very helpful. Hearing that it'll 'come back' (and 'big time' at that!) after a bubble bursts is a little scary, but I can now see how construction has overcorrected and should rise.

  • Report this Comment On July 19, 2011, at 9:35 PM, MichaelDSimms wrote:

    As opposed to never coming back? It's like saying the earth will continue to rotate. As long as population rises so will the need for housing, however it takes jobs for people to afford them.

  • Report this Comment On July 20, 2011, at 9:45 AM, KurtEng wrote:

    Good article. I'm not sure that the health care sector will continue to grow at such a pace. At some point, costs will be cut and the amount of money funding the industry will go back to a more reasonable level. The health industry actually seems a little like the housing industry was 8 years ago.

  • Report this Comment On July 21, 2011, at 2:22 AM, TheDumbMoney wrote:

    "The health industry actually seems a little like the housing industry was 8 years ago."

    I agree to a certain extent, though maybe not on the time frame.

    These two things cannot both be true in the very long term: 1) medical cost increases are totally unsustainable for the U.S. in the long term; 2) medical jobs will continue to increase in the long term.

    However, I see no evidence that the we have reached the point, yet, in the medical industry, where we are creating "jobs that should never have been created."

    Of course, that point will only be known in retrospect, except by people far smarter than I am. My best judgment is that medical jobs will continue to increase until the primary hump of the baby boomer generation is past, by which I mean dead. I estimate that at about seventeen to twenty-five years from today, a good long time. Do not deny the power of demographics.

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