The Looming Lost Decade

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Three years ago, The Wall Street Journal wrote that unemployment will likely "remain above prerecession levels through 2019."

That couldn't be right, I thought. 2019 would be 12 years after the recession began -- longer than it took for employment to recover after the Great Depression. Surely they meant 2010, maybe 2012. I emailed the article's author asking whether the 2019 reference was a mistake.

"Believe it or not, 2019 is correct," he replied. "Sorry to be the bearer of that fact."

This was my first blunt-force realization of how extreme our jobs crisis is.

Three years later, 2019 actually looks optimistic. The economy has added an average of 150,000 jobs per month over the last year. At that rate, unemployment wouldn't fall to 5% until 2025. At an average of 250,000 jobs a month -- higher than was achieved during the late 1990s boom -- unemployment won't fall to 5% until 2020. Even if you get really bullish and assume jobs growth of 400,000 a month -- which has never before been sustained -- it'd take another two years to bring unemployment back to pre-recession levels. When you add the number of workers employed but earning a meager wage and those who have given up trying to find a job, it's even worse. When you consider that we'll likely face more recessions between now and 2020, it's flat-out pitiful.

It's hard to exaggerate how dangerous this situation is. In a study of men graduating from college between 1979 and 1989, Yale economist Lisa Kahn found that those entering the labor market during poor economic times earned about 7% less than those graduating in relative boom times. And the gap lasted seemingly indefinitely: 17 years after graduation, Kahn found that those who began their careers in tough times still earned substantially less than those who started their careers when the economy was strong. Those who stepped into a world of high unemployment were never able to fully shake it off.

Testifying before Congress in 2010, Till von Wachter of Columbia University offered (link opens PDF file) another startling stat: "The average mature worker losing a stable job at a good employer will see earnings reductions of 20% lasting over 15-20 years" when laid off during a recession. And then there's the stress. In the worst downturns, being laid off can reduce life expectancy by as much as 1.5 years, von Wachter found.

This is serious stuff. How and when will it end? And what can we do?

There are three possible answers to that last question. One: Recognize that things change. Two: Wait and hope. Three: Do something about it.

The first was described by Motley Fool commenter kyleleeh in response to a recent column:

While my workplace may not be creating very many "new" positions, we are going to have about 2/3 of our old positions vacated by retiring baby boomers in the next few years. Economists keep focusing on job creation numbers, and keep coming up with bleak employment futures, but I think we may have a labor shortage in the next decade. The same thing has already happened in Japan.

It's a fair point. Some forecasters predict the labor force participation rate will decline significantly over the next decade as baby boomers retire and college attendance rises. Depending on how right they are, it might be far easier to bring down the unemployment rate than some now assume. According to a forecasting tool put together by Reuters, adding 200,000 jobs a month means it will take 10 years to bring the unemployment rate down to 5%, assuming the labor-force participation rate stays constant at 66.4% (the level it was at in 2007). But if you assume the labor-force participation rate eventually settles at 64%, we could be out of the woods four years sooner.

Others say just wait -- something big will happen inevitably. Former Treasury secretary Larry Summers tells a story about advising President Clinton after the 1992 election. Everyone in the administration was nervous at the time about how to get the economy moving and jobs growing. Dozens of reports and forecasts were pored over. But not a single one, Summers remembers, mentioned a word about the Internet. When people fret that they don't see anything on the horizon capable of driving jobs growth, the only appropriate response is, "No one ever does."

Think, for example, about the extraordinary rise in domestic energy production over the last few years, which has propelled oil and gas employment to a two-decade high. "In the last five years, the United States and Canada combined have become the fastest-growing sources of new oil supplies around the world, overtaking producers like Russia and Saudi Arabia," The New York Times reported in April. Exactly no one predicted that 10 years ago. What will its effect on employment be 10 years from now? It could be huge.

Others say the jobs situation is too dire to dither over.         

"I'm concerned that people who have been without work for years will lose skills, lose hope, and lose contact with the labor market," Justin Wolfers, an economist at University of Pennsylvania's Wharton school, told me. "If this were to happen, we could see a generation remain jobless for much of their lives."

"The best cure for this -- the single best employment program -- is a strong economy that draws folks back into work before they lose skills," Wolfers said. "Thus, I believe that it is imperative that the Fed do all it can to propel growth so as to prevent today's long-term unemployment becoming tomorrow's intractable economic problem."

Congress and the president have a role too, he said:

Now is an ideal time for further fiscal stimulus. Inflation is low, unemployment is high, the recovery is faltering, and the U.S. government has never been able to borrow money at lower rates. All of those things say: There are a bunch of projects that the government was going to undertake in a few years' time, and it makes more sense to do them today, instead.

Six million more Americans are unemployed today than were in 2007. Whatever the answer is, it better be big, and it can't come soon enough.

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

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

Read/Post Comments (28) | Recommend This Article (73)

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 June 08, 2012, at 5:07 PM, Zinj wrote:

    "The economy has added an average of 150,000 jobs over the last year"

    I presume this should read:

    "The economy has added an average of 150,000 jobs PER MONTH over the last year"

    ...because the average annual growth over a period of one year would be, well, that one year. The denominator is 1.

  • Report this Comment On June 08, 2012, at 5:08 PM, jpanspac wrote:

    It drives me crazy anytime someone says the government should spend money now because interest rates are so low. There may be good reasons to spend, but low interest rates are not one of them. Rates can, and probably will, increase much faster than the government can pay off its debts. What do we do then?

  • Report this Comment On June 08, 2012, at 5:24 PM, EnigmaDude wrote:

    "Economists keep focusing on job creation numbers, and keep coming up with bleak employment futures, but I think we may have a labor shortage in the next decade."

    This is a very important point that many people do not consider when fretting about unemployment and job creation. At my employer, more than 50% of the workforce will become eligible for retirement in the next 5 years. So while we may not be "creating" new jobs we will be doing a lot of hiring.

  • Report this Comment On June 08, 2012, at 5:33 PM, wolfman225 wrote:

    The stimulus packages (including QE1, QE2, TARP, etc) were of questionable value, especially on a cost-to-permanent-job-created analysis, we're now over $16T in debt, the deficit has reached record (and growing) levels of GDP with no end in sight, a record amount of private equity is sitting on the sidelines because of uncertainty over future tax policies and gov't regulations, and this "economist" says, "Now is an ideal time for further fiscal stimulus."?

    What sense does it make to take more resources from the private economy of the future in order to "prime the pump" of present government spending?

    This guy better stay safely ensconced behind the walls of academia. He'd never make it in the real-life work-a-day world of limited resources & balanced budgets the rest of us live in.

    This would be akin to me being underwater on my home, in debt to my eyeballs & unable to meet the minimum payments, maxed out on my credit cards, saying that because someone else is willing to lend me more money (I just got two more "pre-approved" credit card offers in the mail) "now would be an ideal time for me to go deeper into dept to fix the roof and get that new car I need."


    The first step to getting out of any hole is "STOP FKN DIGGING!"

  • Report this Comment On June 08, 2012, at 5:37 PM, xetn wrote:

    The Austrian economists contend that what is needed is to let the weak companies to fail and then the real recovery will occur and rather quickly. With all the bailouts and takeovers has done nothing but prolong the agony.

    An examination of the 30s depression, reveals a similar attempt to interfere with the correction, which prolonged it for a decade.

    There was a severe depression in 1920-23, but since the fed nor the government did anything, it recovery occurred very quickly.

  • Report this Comment On June 08, 2012, at 6:57 PM, Viking70 wrote:

    "Thus, I believe that it is imperative that the Fed do all it can to propel growth so as to prevent today's long-term unemployment becoming tomorrow's intractable economic problem."

    Congress and the president have a role too, he said: Now is an ideal time for further fiscal stimulus."

    Honestly, it alarms me at how short sighted these economists are. Let's keep trying the same old thing over and over without asking the job creators what might spur hiring. the text book says stimulus, stimulus, stimulus...

    Here is what Congress can do to spur job growth:

    1. Clear up the confusion on ObamaCare, but this will have to wait until the Supreme Court rules on it first (personally, I think we should start over in regards to universal health care, but that is beside the point). The uncertainty on the requirements and costs are a problem.

    2. Clear up the uncertainty regarding future tax rates. What are they going to be for the next 3-5 years at least (not just another one year extension)

    3. Reduce government regulations, and I do not refer to Dodd-Frank here. Even non-financial companies have been burdened by excessive regulation over the past few years (carbon dioxide as a regulated substance anyone?)

    4. Develop a plan to reduce the debt load. Doesn't have to be drastic, but something needs to be done to put us on a path to debt reduction, and put potential employers mind at ease.

    If we only had one or two uncertainties, then I think there would be more movement on the business side, but our government is seriously fractured and there seems to be no solutions in sight. This is the problem. We have seen that tax breaks and stimulus spending are not really paying off despite the huge dollar amounts that they are costing the Federal government. Let's do some things that won't cost anything, and see how that works for a change.

  • Report this Comment On June 08, 2012, at 7:02 PM, TMFMorgan wrote:

    <<Let's keep trying the same old thing over and over without asking the job creators what might spur hiring.>>

    So let's ask them:

  • Report this Comment On June 08, 2012, at 7:21 PM, Viking70 wrote:

    From the link provided "This closely matches other private business surveys like the National Federation of Independent Businesses survey and the PricewaterhouseCoopers' Annual Global CEO Survey. All have told a similar story: Bad regulations and uncertainty from Washington are a problem, but low sales are by far the biggest worry." (good article by the way)

    So, bad regulation and uncertainty are a problem? How much would that cost us to fix? Nothing, in reality. I believe that if you fix these two problems, then you will spur confidence not just in the job creators, but also the general public, and then demand will increase.

    We have tried to spur demand, and I agree that normally it would work to spur a long term recovery. However, under the current conditions, the stimulus works for a while, but the payoff fades more rapidly than in the past. Fix the uncertainty, and then you will get the most return from your stimulus dollars. Then you will see a prolonged recovery. Leave the uncertainty, and you will continue to see short term bursts followed by regression. We are still in recovery, and I do not believe that we will see a double dip recession (didn't believe it last year either), but we are getting far too little return on the money we spend due to our government's self-inflicted wounds.

  • Report this Comment On June 08, 2012, at 10:35 PM, skypilot2005 wrote:

    It's Bush's fault.

    We need some more "Hope & Change".


  • Report this Comment On June 08, 2012, at 10:51 PM, rma1344 wrote:

    Good post; however in view of the fact that most boomers have not saved enough to retire , the anticipated surge of job openings for those youngsters graduating may not happen.

  • Report this Comment On June 08, 2012, at 11:46 PM, ibuildthings wrote:

    I listen to Bloomberg on the commute. I often hear business geeks saying that hiring is slow because companies big and small don't know what the next regulatory changes will be, and how much they will cost. They don't know if someone will change the rules on them without regard to what it will cost.

    My own thoughts: I don't care as much about the exact tax rate, as long as I could count on it being the same for a while, so I can plan around it, and that the money would be spent wisely.

    Buffett must feel the same way, but he isn't willing to say that. He didn't donate $50 Billion to the treasury debt fund, he donated it to the Gates Foundation, where he decides where the capital is allocated. Don't listen to what they say, watch what they do.

    It isn't the taxes as much as not knowing what the taxes will be, and who will change them and why.

  • Report this Comment On June 09, 2012, at 4:11 AM, mrpraxis wrote:

    The answer to the "we need something BIG" argument is right in front of us and it's already started...if only the government would get out of the way. Look no further than the state of North Dakota. When it comes to crippling our energy needs for the sake of job-crushing environmental regulations there IS a way to both promote our own energy independence and not do it like the disastrous pollution and consequences to the environment. It's called Oil. It's called Natural Gas. And we have got a lot of it. Make North Dakota a model for the U.S. and watch the job creation explode in the energy sector. Drilling and Frakking can be clean and safe AND very profitable. For those who hate oil......well I hate families with unemployed breadwinners. I am willing to let Greenpeace take a 30 year breather.

  • Report this Comment On June 09, 2012, at 7:34 AM, JackCaps wrote:

    The negative aspects of taxation and debt accumulation far out weight the benefits of government attempts to stimulate the economy through the political process. This process only rewards the politically connected at the expense of those with few or no political connections.

  • Report this Comment On June 09, 2012, at 9:36 AM, ershler wrote:


    I work on a drilling rig and don't think it is clean or safe; I'm interested what experiences you've had to decide it was.

  • Report this Comment On June 09, 2012, at 9:55 AM, TMFMorgan wrote:

    <<Make North Dakota a model for the U.S. and watch the job creation explode in the energy sector>>

    Not sure if you saw the link in the article, but that's pretty much happening already. Oil and gas employment over the last 20 years:

  • Report this Comment On June 09, 2012, at 10:02 AM, TMFMorgan wrote:

    <<This process only rewards the politically connected at the expense of those with few or no political connections.>>

    Not saying that doesn't occur (it does), but about half of the stimulus over the last 4 years came in the form of tax cuts (Bush's 2008 tax rebate plus 30% of the stimulus package plus the subsequent payroll tax cut) that benefits the vast majority of workers.

  • Report this Comment On June 09, 2012, at 10:09 AM, XMFAimeeD wrote:

    closer look at employment in oil and gas right now:

  • Report this Comment On June 09, 2012, at 11:26 PM, Cobra30299 wrote:

    One thing you forgot to mention was the huge influx of H-1BS, L1s, Green cards, etc. Do you realize that every year over 1 million H1Bs , green cards are approved? Also that untold L1s are brought in to take the best jobs from American citizens. I can not believe how the press continues to turn a blind eye to this issue, that the US is bringing in foreigners to take the best jobs, while US citizens are left on unemployment. Also foreigners that get graduate degrees in Science or Engineering are all allowed to stay in the US and take jobs. This is unbelievable that you can print a story like this without mentioning this issue.

  • Report this Comment On June 09, 2012, at 11:39 PM, TMFBlacknGold wrote:

    Good point about people nearing retiring age, which is true for just about any engineering field. Just before I graduated in May my professors would tell my class that for every young paper engineer entering the workforce another five retire.

    Seems to be a commonly overlooked stat.

  • Report this Comment On June 10, 2012, at 5:03 AM, ggreatguns wrote:

    >>that the US is bringing in foreigners to take the best jobs, while US citizens are left on unemployment.

    You do realize what you said right? So foreigners are working, paying taxes and providing unemployment checks to US citizens....

    >>Also foreigners that get graduate degrees in Science or Engineering are all allowed to stay in the US and take jobs.

    What do you propose we do? send all the graduates back? Why let them study in the US at all?

    Immigration is/has been driving innovation in the US for the past 100yrs. Einstein was not born in the US, but he immigrated here and continued with his work here.

    US cannot try to win by encouraging already successful scientists/engineers etc to move here from their home countries during this time and age.

    We have to make sure they are already here and help them succeed HERE to retain their talent.

  • Report this Comment On June 10, 2012, at 8:28 AM, macroanalyst wrote:

    Considering the fact that 66% of household assets are financial assets, one might see a very prolonged balance sheet recession for households...

  • Report this Comment On June 10, 2012, at 3:29 PM, Protectionist wrote:


    How about a more freightening proposition with a more daring solution. I would like to suggest an intellectual gap has persisted for 200 years since Adam Smith penned his subtly flawed work which is now coming home to roost in America in the form of free trade. To be able to appreciate the argument which is about to follow, consider the following claims: Karl Marx suggested free trade as the fastest means to destroying capitalism, while Daniel Webster claimed the primary reason we have our US Constitution was to stop the economic chaos unleashed by free trade with Britain under the Articles of Confederation. Yet, astonishingly we have three political parties which have adopted unwittingly Karl Marx's advice, while the Chinese have adopted Webster’s advice. The Tea Party seems to be oblivious to Webster’s claim, and the average Republican has no idea that Lincoln was a protectionist, and that his party remained protectionist until the 1960s when it became an economic mirror image of the Democrats who have historically been free traders. The dangerous error therefore the modern conservative makes is the failure to make a critical distinction between free international markets and free domestic markets. The reason for this, as the new website suggests, is that there has never been a sound theory of economics. Explaining the intricacies of this failed dynamic is the goal of the website’s associated book. It's time for big ideas. Maybe you could be the writer who brings them to the American public. Best regards.

  • Report this Comment On June 10, 2012, at 5:34 PM, TMFDarwood11 wrote:

    I agree about the boomers and I've taken the position that a lot of things need to be considered when making employment projections. Of course, the problem is, it's difficult to predict exactly when near retirees will, in fact, retire. However, I have been using the following:

    1. There are about 76 million "boomers."

    2. About 4 million "boomers" will retire each and every year. This is a simple, linear projection which is not accurate. What is accurate, is as people exceed age 66, it is reasonable to expect that retirement in that age group will accelerate.

    3. Some near retirees say they will "work forever" but I put that in the same category of nonsense as those who say "I will live forever."

    4. Someone will have to replace these retirees in the work force.

    5. Those jobs will go to the qualified.

    6. It is up to younger Americans to do their homework and prepare to fill those job vacancies. if they don't, the jobs will go to immigrants or will move overseas.

    At present, there has been reported to be a shortage of workers in "manufacturing" of about 600,000. I expect that number will increase. It will be fueled by recent changes in manufacturers in the U.S., by retirement of people in this employment area, and by a decades long failure of policy and education in this country.

    That policy was dictated as much by parents as it was by politicians. Until parents "get real" about their role in preparing their children to make a contribution to society things will not get better. Some parents understand that children need an education and a work ethic that will propel them to a successful career as workers and spouses. That career needs to span 40+ years.

    Too many parents apparently don't understand this. Combined with socio-economic factors, (whatever that means) we now have unemployment statistics that are abysmal for young black males.

    Similar situations occur throughout society as "workers" are produced who are unskilled. Let me be specific. Being "skilled" means having capabilities that are desired by employers. Having "talent" is not at all being skilled. Too many in our society are incapable of making this distinction.

  • Report this Comment On June 11, 2012, at 4:22 AM, BuyloPESellHiPE wrote:

    One of the reasons for lost jobs is that the rest of the world has no rules when it comes to licenses, space between workers, the number of exits in a factory, fumes, safety controls (in most US companies, they specify safety on top of what is already provided by the machine manufacturer which nearly doubles the cost of the equipment), there is no affirmative action (it is survival of the fittest). On the other hand where rules matter and great kindness is required; we suck. Airline stewardesses in most countries outside the USA have young energetic, professional and good looking girls doing the job. They even take care of infants beautifully, including holding them while moms have to go to the bathroom. I once saw a lady struggling with her baby and a bag. This stewardess did not offer any help whatsoever. All she said was Mam, Please take your seat, you are blocking the asile. No wonder we have lost all jobs. Throw affirmative action out the window and hire the right people for the jobs.

  • Report this Comment On June 11, 2012, at 8:30 AM, whereaminow wrote:


    I would take all of these predictions with a grain of salt.

    As you can see from my recent post, "What Causes Major Economic Downturns", no mainstream economist can tell you why our economy suffers from a cluster of errors. (

    Since they do not understand what causes downturns, all they can do is treat symptoms. Or, even more pathetically, ask the Fed to treat symptoms through further currency debasement.

    Ah, the blind leading the blind....

    David in Liberty

  • Report this Comment On June 11, 2012, at 9:43 AM, mtf00l wrote:


    You make me laugh!!! :D


    Keep up the good fight...

  • Report this Comment On June 16, 2012, at 6:26 PM, jonesericr wrote:

    The information about bleak employment is stressful on its own to those of us still working. While in the private sector I got laid off and then moved overseas and got re-employed a couple of times. The last private sector job was a beltway bandit. These folks can be purveyors of "under employment" depending on the contract they bid on. This under-employment in a down economy works in their favor because it's harder for workers to break out of that rut. For the company to make money on a contract they bid very low. This usually means layoffs, salary cuts and other monetary offerings being removed. I have since moved to the government side for a bit more security but with all the talk from one side of the aisle about reducing govt workforce, notably not their jobs, there's some more stress. The Republican opposition is so focused on winning back the White House they would subject the current population to unneeded stress and worry when working together would be better for the countries mental outlook on the future and provide some hope that someone is helping rather than hurting for their own enrichment.


  • Report this Comment On June 16, 2012, at 9:11 PM, onejem wrote:

    Unfortunately technology has shrunken the world and changed the employment landscape forever. One robot or computer can do the work of what used to taken dozens of people. Those jobs are never coming back! What is needed now is American creativity, foresight, and American leadership- not the political party BS we keep geting.Regulate the banks not what type of light bulbs we can use. Create certainty in the tax code , not for a few months but for several years. Use the tax code to create incentives to spend money on projects that are needed for energy efficiency and independence and to create planned industrial zones that are energy and transportation efficient. Can you say natural gas, oil, wind, geothermal and solar? Each will work somewhere and few can work everywhere. I'm sure there are many companies who would love to expand but want to know what the rules will be i.e.some degree of certainty on which to plan for the future. Didn't the roads and public works projects spur a greatt economic expansion and increase of the middle class? Oh and cut spending starting with congressional pay, benefits and staffing. JEM

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