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.