Nearly 26 million Americans are either unemployed, underemployed, or have given up looking for a job. In this article, I want to put their story into pictures.
This chart, from the finance blog Calculated Risk, has been described as "the scariest unemployment chart you'll ever see":
Between the end of World War II and the late 1990s, every recession saw employment return to pre-recession levels fairly quickly -- typically in less than two years. And the deeper the drop in employment, the more rapid the recovery.
That trend ended in 2001, when employment took nearly four years to return to normal. That was by far the slowest post-war recovery, but the depth of the decline was never that severe -- unemployment peaked in 2003 at a little over 6%.
Today's recession is like nothing we've seen since the Great Depression. The depth of the decline has been horrendous, and it's going to take an unprecedented amount of time before we're back to par. If the economy adds 200,000 jobs a month going forward (about double what we are now), it would be 2019 before we return to normal levels of employment. Adding 400,000 a month, the economy wouldn't reach pre-recession levels until 2014, or seven years after the recession began.
Another post-war record this recession has broken is the average duration of unemployment, now 40 weeks:
Source: Bureau of Labor Statistics.
The last time the average duration of unemployment was anything close to this was the 1930s. Consider this quote from the book Since Yesterday, describing life during the Great Depression:
Men who have been sturdy and self-respecting workers can take unemployment without flinching for a few weeks, a few months, even if they have to see their families suffer; but it is different after a year ... two years ... three years ... Among the miserable creatures curled up on park benches or standing in dreary lines before the soup kitchens in 1932 were men who had been jobless since the end of 1929.
Today, 4.1 million people have been out of work for over a year; half of those have been unemployed for over two years.
Of course, unemployment isn't even across all groups. One of the biggest distinguishing factors is education:
Source: Bureau of Labor Statistics.
The breakdown is even more skewed when broken out by age. Those aged 20-24 without a high school diploma have an unemployment rate of over 20%. For those aged 34-44 with a college degree, it's just 3.4%. It skews even more when split by race and gender, but you get the point -- there's no one-size-fits-all unemployment rate.
Interestingly, for those who are unemployed, the odds of getting stuck in long-term unemployment (over one year) are about the same regardless of education:
Source: Pew Trusts.
This shows two things. One, the economy is slow just about everywhere you look. Two, this recession hasn't just been a slowing of the economy, but a complete restructuring of entire industries. Once high-flying fields that required an education -- real estate development, or construction management, for example -- are shells of their former selves. That's put even educated unemployed people on a similar track as those without a degree: willing and able to work, but only in yesterday's economy.
Yet, surprising to many, not a lot of people are losing their jobs today. Employers shed so much of their workforce during the depth of the recession that there isn't a lot of fat left to cut. Layoffs and discharges are now the lowest they've been in over 10 years:
Source: Bureau of Labor Statistics.
There is still one group, however, that's laying workers off with force: governments. Since early 2010, the private sector has created nearly 3 million jobs, while governments have cut over 600,000:
Source: Bureau of Labor Statistics. *In thousands.
This last one I think is the most important chart explaining our employment mess:
Source: Federal Reserve.
Since 1959, wages as a percentage of GDP have fallen from 51% to 44%. That shift is huge. If wages as a percentage of GDP were at the same level today as in 1959, workers would earn over $1 trillion a year more than they current do. A lot of that money has instead found its way into corporate profits, which have increased from 6% of GDP in 1959 to almost 10% today.
This causes all kinds of angst and protest, but I don't think there's anything inherently wrong with it. The change is not driven by corporate greed; it's driven by technology, and how the market values labor versus capital. My favorite example is a steel mill in Gary, Ind. In 1950, it produced 6 million tons of steel with 30,000 workers. Today, it produces 7.5 million tons with 5,000 workers. Automation and technology increased profits at the expense of labor. Here's how Erik Brynjolfsson and Andrew McAfee put it in their book Race Against the Machine:
At least since the followers of Ned Ludd smashed mechanized looms in 1811, workers have worried about automation destroying jobs. Economists have reassured them that new jobs would be created even as old ones were eliminated. For over 200 years, the economists were right. Despite massive automation of millions of jobs, more Americans had jobs at the end of each decade up through the end of the 20th century. However, this empirical fact conceals a dirty secret. There is no economic law that says that everyone, or even most people, automatically benefit from technological progress.
They continue:
Even as overall wealth increases, there can be, and usually will be, winners and losers. And the losers are not necessarily some small segment of the labor force like buggy whip manufacturers. In principle, they can be a majority or even 90% or more of the population.
The problem today is that education isn't keeping up with changes in technology -- that's the race against the machine. With it comes a winner-take-all environment and all kinds of inequalities, not the least of which is the reality that the real winners of today's economy are those who can invest, not those who can work. That gap will eventually rebalance, but getting there is slow, painful, and can potentially leave a generation of workers behind.
Interested in more like this? I've just published a collection of short essays exploring the peculiar corners of the economy -- from rich people risking it all to gain money they don't need, to what investors should have learned after 9/11. Click here to download it on your Kindle or iPad. It's the best $1 you'll spend all year.
Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.
